05 dot civilaviation final report

Impact of Civil Aviation Policies on Tourism In India

M&A

This report was prepared with financial assistance from the Department of Tourism and Culture,

Government of India. The views expressed herein are those of the Consulting Team,

and do not represent any official view or stance of the DOT.

Impact of Civil Aviation Policies on Tourism In India INDEX

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I N D E X

Section Subject Page Nos. ABBREVIATIONS GLOSSARY

1. INTRODUCTION 1 • Introduction 1 • Background to the Study 2 • Approach 2 • Constraints 3 • Layout Of The Report 4

2. IMPACT OF CIVIL AVIATION ON THE ECONOMY 5 • Economic Growth & GDP Growth - World 5 • The Price Effect on Demand For Air Services 6 • India’s GDP Vs Tourist Arrivals 6 • Indian Air Transport Activity - Comparisons 8 • Air Transport – Driver of Economic Growth (World) 8 • The Impact of Civil Aviation on Tourism 10 • Aviation Industry – Contribution to FDI 11

3. CAPACITY & LOAD FACTORS 13 • India’s Air Connectivity – Flag Carrier & Other Airlines 14 • Seat Capacity & Load Factors 15 • Load Factors on Key Source & Destination Markets 20 • Increases & Decreases in Seat Capacity 25 • Ticket Prices to India – A Comparison 30 • What the Airlines & the Trade Say / Want 33

4. DEMAND FOR AIR TRAVEL 35 • Characteristics of Business / Leisure Travellers 35 • India – A Long Haul Destination 36 • India Air Traffic Growth 37 • Major Source Markets 38 • Seasonality - Inbound 38 • NRI Source Markets 40 • Major Outbound Source Markets 41 • Purpose of Travel 42 • Overseas Foreign Workers 44 • Seasonality - Outbound 46 • Outbound Traffic by Airport 47 • Growth Forecasts 48

5. BILATERALS 49 • Air Service Agreements & Bilaterals 49 • India’s International Air Services Policy 54 • India’s Need For A Clear Policy 57 • Utilisation of Capacity Entitlements by Foreign Carriers 58 • Charter Services 62 • Inbound Charter Services 63 • Outbound Charter Services 63

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Impact of Civil Aviation Policies on Tourism In India INDEX

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I N D E X Contd.

Section Subject Page Nos. 6. ECONOMICS OF AIRLINES & THE CASE FOR AIR INDIA 65 • The Airline Industry 65 • The Case for Air India 69 • Airports – A Case for Privatisation 71 • ‘Model’ On Relaxation of Blockshare / Royalty Arrangements 72 • Civil Aviation Vs Tourism – Effect on the Indian Economy 75 7. THE CASE FOR LIBERALISATION & RECOMMENDATIONS 80 • Bilaterals & Seat Capacity 81 • Charters 86 • Airports / Ground Handling 86 • Privatisation / Air India 87

APPENDICES

Appendix

No.

Particulars

Page No.

Append. I Correlation Between World GDP / RPK’s & ASK’s 89

Append. II Load Factors on All City Pairs Reported by ICAO for CY’s 2000 90 – 94

Append. III Load Factors on All City Pairs Reported by ICAO for CY’s 2001 95 – 98

Append. IV Load Factors on All City Pairs Reported by ICAO for CY’s 2002 99 – 100

Append. V Passengers Carried by City Pair in FY 2002 (as reported by DGCA) 101 – 104

Append. VI Flights Added / Discontinued by Key Markets– Post 9/11 To Date. 105 – 107

Append. VII Flights Added / Discontinued by Indian Airport – Post 9/11 To Date 108 – 109

Append. VIII Tourist Arrivals to India From Top 15 Source Markets By Quarter FY 2001 110

Append. IX Details On India’s Air Services Agreements (2001) 111 – 112

Append. X Air India’s Block Space Arrangements. 113

Append. XI Recent Major Airport Privatisation / Potential Major Privatisations in 2002 / 2003. 114

Append. XII Disparity In ATF Pricing For Air India / IAC On International Routes 115 - 116

BIBLIOGRAPHY 117

Impact of Civil Aviation Policies on Tourism In India Abbreviations

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ABBREVIATIONS

AAI - Airport Authorities of India

ACI - Airports Council International AEA - Association of European Airlines AI - Air India APEC - Asia-Pacific Economic Cooperation ASA - Air Services Arrangements ASEAN - Association of South-East Asian Nations ASK - Available Seat Kilometer ATAG – Air Transport Action Group BA - British Airways CAGR - Compounded Annual Growth Rate DGCA - Directorate General of Civil Aviation DOT - Department of Tourism, Government of India EC - European Commission EFTA - European Free Trade Association EU - European Union FDI - Foreign Direct Investment GATS - General Agreement on Trade in Services GDP - Gross Domestic Product IA / IAC - Indian Airlines IATA - International Air Transport Association ICAO - International Civil Aviation Organization IMF – International Monetary Fund JAL - Japan Airlines KLM - KLM Royal Dutch Airlines MOU - Memorandum of Understanding na - Not applicable OECD - Organization for Economic Co-operation and Development PATA - Pacific Asia Travel Association RPK - Revenue passenger-kilometer SIA – Singapore Airlines UAE United Arab Emirates UK - United Kingdom US - United States WTO - World Trade Organization WTTC - World Travel and Tourism Council

Impact of Civil Aviation Policies on Tourism In India Glossary Of Terms

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GLOSSARY OF TERMS Air Services Agreement - An agreement with formal treaty status between

governments regulating the conduct of trade in international air services. It consists of a series of articles (or provisions).

Alliance - An agreement between airlines to cooperate in the

provision or operation of some of their services on a route, or on a regional or global basis.

Available seat kilometers - The total number of seats offered multiplied by the

distance flown, used as a measure of air transport passenger capacity.

Blocked space agreement - The purchase by one carrier of a block of seats from

another carrier for resale to passengers directly. Cabotage - Provision of commercial domestic air services within a

country. Cabotage rights are classified as either consecutive cabotage — the right of foreign-owned airline(s) to fly a domestic flight stage within the host country as a continuation of an international service (also know as eighth freedom) — or standalone cabotage — the unrestricted right of foreign-owned airline(s) to provide domestic air services in the host country (also known as ninth freedom).

Capacity allocation - The allocation of rights to individual airlines to fly services

available under ASAs. Charter services - See non-scheduled services. City pair - An air route between two cities. City designation - The designation of air services to particular cities, or a

choice of cities specified under an ASA. Codesharing - The assignment of one airline’s designator code (for

example, ‘AI’ for Air India) to a flight operated by another airline.

Double disapproval - Arrangements in bilateral air service agreements whereby

proposed fares can be disallowed only if rejected by both contracting countries.

“Fourth freedom traffic right”- The right of a designated airline of one country to take on,

in the territory of another Country, passengers, freight and mail for off-loading in the Country in which it is licensed.


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“Fifth freedom traffic right” - the right of designated airline of one country to carry

passengers, freight and mail between two countries other than the country in which it is licensed.

Flag carrier - A country’s national airline. Countries with only a

government-owned airline often identify the airline as the national or flag carrier.

Freedoms of the air - Types of international aviation rights established under

ASAs. Hub and spoke network - A network of routes operating through a central hub point.

Airlines may channel and increase traffic through hub points, thereby creating economies of traffic density.

Intermediate rights - The right of a carrier from one country to fly to another

country via a third country (a form of fifth freedom rights). Landing and take-off slots - A landing and/or take-off time at an airport. Load factor - The number of passengers carried as a percentage of the

number of seats available. Memorandum of Understanding - An agreement between two parties. With regard to ASA’s,

it is a less formal type of agreement that may be as binding as a formal agreement and may cover scheduled and/or non-scheduled international air services.

Multilateral (agreement) - A trade agreement that encompasses a large number of

countries. Dual / Multiple designation - A country’s policy of permitting more than one airline to

operate scheduled international air services between it and other destinations.

Non-scheduled airline - Any air transport enterprise only offering air transport

services to the public that are not performed according to a regular timetable.

Non-scheduled services - Flights performed for remuneration on an irregular basis.

[Both scheduled and non-scheduled airlines provide non-scheduled services.] Usually referred to charter services and can apply to either passengers or freight.

‘Open skies’ agreement - An agreement to remove restrictions on the ability of

airlines to operate services between two countries. Origin– destination traffic - A measure of airline (passenger) traffic between the

commencement point of an air passenger’s journey and the end point of the journey, as distinguished from uplift–discharge traffic.


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Plurilateral (agreement) - A trade agreement, not necessarily confined to a

geographic region, between more than two countries, but not so many as to make it “multilateral”.

Revenue passengers A commercial passenger for whose transportation an air

carrier receives commercial remuneration. Revenue passenger kilometres - The number of paying passengers on an aircraft multiplied

by the number of kilometres flown, used as a measure of air passenger travel services.

Route - At its simplest level, an air service between two points or

cities. Scheduled airline - Any airline operating regular air services according to a

published timetable (Many also operate non-scheduled services).

Scheduled services - Flights listed in a published timetable (or that are so

regular and frequent as to constitute a recognizably systematic series) and performed for remuneration.

Single designation - A country’s policy of permitting only one airline to operate

scheduled international air services between it and other destinations.

Stage length - The distance flown between take-off and landing. Stopover rights - The right of a carrier from one country to carry its own

international passengers between two points within another country.

Substantial ownership - All or majority ownership of an airline by citizens in the

country of registration. There is no internationally agreed standard, so each country can determine what it accepts as substantial ownership.

Tariffs - The prices to be paid for the carriage of passengers,

baggage or cargo (excluding mail) on scheduled air services and the conditions, under which these prices apply, including remuneration and conditions offered to travel agencies and other auxiliary services.

Thin route - Route over which traffic and frequency is low. “Third freedom traffic right” - The right of an Eligible Airline of one State Party to put

down, in the territory of another State Party, passengers, freight and mail taken up in the State Party in which it is licensed.

Yield - Airline revenue per unit of traffic. Passenger yield is airline

revenue per passenger kilometer.

Impact of Civil Aviation Policies on Tourism In India ( 1 ) Introduction

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INTRODUCTION

1.1 This study seeks to provide aviation industry stakeholders and tourism authorities with the necessary information regarding priority areas for the development of civil aviation in India and identify appropriate actions that need to be taken going forward. The study has been initiated by the Department of Tourism, Government of India and includes CRISIL as the lead consultant supported by Mahajan & Aibara (M&A).

1.2 The objective of the study is to aid industry stakeholders in resolving issues presently

facing the aviation / tourism transport industry and guide in improving policies, investment and business decision-making within and related to these sectors. This document deals specifically with issues regarding air seat capacity and strategies for air services negotiations. Related subjects under civil aviation - Airports & Infrastructure, price related impediments are also covered in this report.

1.3 The overall aim of this report is to present a case to secure adequate seat additional

capacity with a focus on India’s key source and destination markets. The Consulting Team defines “adequate seat capacity” to be the extent to which supply matches current and anticipated demand and need in the most cost-effective way.

1.4 This report also presents and evaluates via an econometric model the direct, indirect

and induced impacts of India’s international aviation arrangements on the market for air travel to and from India. Specifically, the consulting team has modelled the competitive effects of incremental seat capacity on prices, employment and net tourism. Finally it examines the issues surrounding the proposed liberalisation of India’s policy for civil aviation, and provides a suggested policy option plan for the continued development of the Indian civil aviation industry and including the pace and extent to which the policy should be liberalized and the potential effect of that liberalisation on the Indian economy, airline and tourism sectors.

1.5 This review does not cover policy issues for airfreight. Furthermore, it is not the intent of

this review to raise issues relating to aviation safety, security, technical aspects or environmental concerns and therefore these areas are specifically not dealt with in this report.

1. INTRODUCTION


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BACKGROUND TO THE STUDY

Objective

1.6 The purpose of the study was to identify and analyse the effect of current civil aviation

policies and practices in India and to assess the economic impact, such barriers have on :

The Tourism industry in India – with a focus on the International tourist

The Civil Aviation industry in the country (International)

Air India and Indian Airlines (for international traffic)

The inbound and outbound tourist (consumer)

Airport facilities in the country 1.7 To make recommendations on suggested civil aviation policy, based on researched

economic data, to promote Tourism in India. Recommendations and suggestions on changes that may be considered for implementation on :

o Air Services Agreements (ASAs)

o Tariff Structures and Pricing

o Seat capacity augmentation

o Tax impacts on air travel and ATF

1.8 It was originally intended that this study addresses both International and domestic civil aviation issues. However, the DOT was of the opinion, with which the consulting team concurs, that issues relating to ‘Bilaterals’ be concentrated upon as domestic civil aviation issues follow a different set of policies that have, post ‘liberalisation’ been pragmatic.

1.9 This study seeks to identify gaps in the current approach by policy makers to the civil

aviation sector. It does not seek to address detailed points of implementation. The recommendations provided are the consulting team’s views on what ought to be done to improve air connectivity and access to India and are presented for consideration only.

1.10 The key findings and recommendations are provided in presentation and report form.

APPROACH 1.11 In order to accomplish the objectives the Consulting Team performed the following

tasks:

1. Reviewed and compiled data on historical and current market trends of the global commercial aviation and tourism industry. In an effort to put India's commercial aviation and tourism sectors in context with those of peer countries, the consulting team has conducted benchmarking exercises in several areas so as to identify international best practices.


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2. Collated data on air seat capacities and load factors by airline, by city pair from

several secondary sources such as DGCA, ICAO and airline timetables with a view to identifying routes requiring additional seats / frequencies.

3. Conducted detailed background and contextual research on key issues affecting

the civil aviation sector in India, including relevant statistics and trends, identification of key regulatory issues and other barriers to growth including taxes and airport charges.

4. Reviewed the current regulatory / legislative framework in which international air

services operate, including multilateral as well as bilateral structures, and the objectives of the framework.

5. Analysed and assessed the benefits, disadvantages and overall effects of the

international aviation regulatory framework and the sectoral effects of India's current stance to negotiating bilateral air services agreements for the tourism and the aviation industry.

6. Conducted interviews with key industry stakeholders in the aviation, tourism and

related industries to discuss their views on current impediments and barriers for this sector so as to develop recommendations to meet the study objectives.

7. Identified options for efficient and effective delivery of tourism-related infrastructure

and transport services.

CONSTRAINTS

1.12 We think it is important to re-emphasize the constraints, within which this study was conducted, so as to ensure that its outputs are interpreted correctly and used appropriately.

1.13 CRISIL / M&A have endeavored to present as extensive an analysis as possible, given

the limited scope and time frame allocated for the study. The report does, provide the economic and regulatory background necessary for the DOT to assess the potential for action against present impediments and hindrances. It is important, however to emphasize that this study should be considered only as the first step en-route to eliminating barriers that are identified and deemed to have a sufficiently significant effect on the Indian tourism and civil aviation sectors.

1.14 The findings contained in the report reflect analysis of primary and secondary sources of

information including previously completed reports and analysis prepared by CRISIL / M&A. Sources quoted or referred to in this report are deemed reliable; however, we do not guarantee their accuracy.

1.15 It must be emphasized that in some instances the consultants were unable to procure

necessary data or / and were unable to get up-to-date data. They were informed that certain data was confidential or not officially collected at all. In such instances, qualitative assessments have, where appropriate, been made.


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1.16 Work on this project commenced in March 2003. Consequently, as many changes have

taken place since then, the circumstances of some of the barriers we speak of in this report may have changed. The analysis in this report is an analysis of the initial impediments that were identified, although we have tried to update the analysis as much as possible within the changed economic and regulatory circumstances. It is therefore recommended that should the DOT contemplate taking any issues related to regulatory restrictions and / or bilateral agreements with the Ministry of Civil Aviation at a future date, the up-to-date status on the relevant issues will need to be re-assessed.

LAYOUT OF THE REPORT

1.17 This report is structured as follows. ♦ Section 2 : Impact Of Civil Aviation On The Economy ♦ Section 3 : Capacity & Load Factors ♦ Section 4 : Demand For Air Travel ♦ Section 5 : Bilaterals ♦ Section 6 : Economics Of Airlines & The Case For Air India ♦ Section 7 : The Case for Liberalisation & Recommendations ♦ Appendices

Impact of Civil Aviation Policies on Tourism In India ( 5 ) Impact of Civil Aviation on Economy

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ECONOMIC GROWTH & GDP GROWTH - WORLD

2.1 The commercial aviation industry has grown rapidly, with worldwide scheduled domestic and international air traffic increasing from 9 million passengers in 1945 to over 1.6 billion in 2002. On average, passenger traffic has grown at 10 per cent annually. Growth rates vary significantly from exceeding 20 per cent annually in the first post-war decade, to more moderate increases in recent decades as the air transport market has become more mature. The only two exceptions when world air traffic recorded declined were in 1991 following the 1990 Gulf War and in 2001 in the aftermath of the events of ‘11 September’ in that year.

2.2 Although growth in world air traffic has been much greater than world economic growth,

there is a high correlation between the two. Statistical analyses show that historically for every 1% growth in GDP, Revenue Passenger Kilometres (RPK’s) and Available Seat Kilometres (ASK’s) {broadly the more scientific terms for passengers traveling and seat capacity respectively that takes into account the distance of travel} grew at a little over double that rate. Details are provided in Appendix I. The converse is that for every 2% growth in RPK’s / ASK’s, GDP grew 1%. Travel reflects increasing commercial and trade activity and increasing disposable personal income and propensity to travel. Exhibit 2.1 below illustrates the correlation.

EXHIBIT 2.1

WORLD GDP GROWTH Vs TRAFFIC GROWTH

GDP, ASK and RPK 1972-2002

-10

-5

0

5

10

15

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

E

% c

hang

e GDP changeChange (ASK)RPK change

Source: IMF/IATA

2. IMPACT OF CIVIL AVIATION ON THE ECONOMY


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2.3 World GDP is forecast to grow by 2.9% over the next 20 years. In mature economies,

GDP growth will average between 2% & 3% per year. By contrast, GDP growth in developing regions may average over 4%. China is forecast to have the fastest growing GDP at 5.9%, World air traffic measured in RPKs will grow 4.9% annually over the next 20 years, or two percentage points more than GDP. Southwest Asia (includes India) and Africa GDP and traffic have historically lagged the world. Both regions are forecast to grow above the world average over the next 20 years.

THE PRICE EFFECT ON DEMAND FOR AIR SERVICES

2.4 A steady fall in real prices of airfares has contributed substantially to increased air travel. While GDP growth and falling prices (in real terms) alone may not be representative of air traffic trends at the regional or country level, they do depict aviation trends at the global level. The illustration that follows (Exhibit 2.2 below) shows the downward trends in air fares world wide.

2.5 Over the past four decades there appears to have been a change in the balance of

importance between GDP and real price factors. During the period 1960-1990 some 80% of traffic growth was explained by GDP growth, with 20% due to price reduction, in the 1990’s this appears to be nearer 60% and 40% respectively. Since the 1990’s, price reduction has become more important as average world GDP growth rates have softened. (Source: ATAG)

EXHIBIT 2.2

DECLINE IN AIR FARES (in Real Terms)

INDIA’S GDP Vs TOURIST ARRIVALS

2.6 In India GDP growth in the period from 1996 to 2001 (the post Hindu rate of growth period) has been on average 6.28% whereas the annual compounded increase in inbound and outbound international traffic has been 4.8% and 2.4% for domestic traffic. India is now on a ‘roll’ with a visibly strengthening economy and expectations of significantly higher rates of GDP growth. It is imperative that this not be constrained by insufficient international seat capacity to and from the country. This is the main thrust of this report.


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2.7 The Indian economy will only achieve its economic potential if we are able to compete in

the industries of the future. We need to be strong in the areas with the potential to grow rapidly and this includes the aviation industry itself. The demand for air transport has risen strongly over the last 25 years, driven by falling real prices and rising incomes.

EXHIBIT 2.3

GDP & TRAFFIC GROWTH FY ’96 TO FY ‘01

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%GDP Traffic

GDP 7.6% 7.8% 4.8% 6.5% 6.4% 4.4%

Traffic 9.7% 1.1% -0.1% 5.0% 6.0% 3.7%

95-96 96-97 97-98 98-99 99-00 00-01

Source: DGCA, Ministry of Commerce & Industry

2.8 A comparison of GDP V/s International traffic growth for China and India, two of the fastest growing economies worldwide, is provided in the exhibit that follows. As may be noted, there is a significant disparity in growth of international traffic relative to GDP growth for India. This gap may have negative implications for the Indian economy, as there is a strong link between these two growth indicators, as explained earlier in this section.

EXHIBIT 2.4

CHINA / INDIA – GDP V/s INT TRAFFIC

4.3%

1.7%

4%

0.7%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

China India

Perc

enta

ge o

f Wor

ld

GDP Intl Traffic Source: IMF World Economic Outlook 2001, DGCA, General

Administration of Civil Aviation of China, China Statistical Bureau


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INDIAN AIR TRANSPORT ACTIVITY – COMPARISONS

2.9 Countries with developed economies exhibit higher levels of air transport activity. In

these countries, the relatively higher disposable per capita income results in the propensity of people to spend on air travel. An increase in airline activity can therefore provide a useful indicator of the progress of a nation’s economy. As may be seen by the illustration given below, India lags far behind not only the developed economies but even in comparison to peer nations such as China and Pakistan.

EXHIBIT 2.5

AIR TRANSPORT & GNP

AIR TRANSPORT – DRIVER OF ECONOMIC GROWTH (WORLD)

2.10 Air transport is a driver of economic development. The economic stimuli of airlines, airports and their direct affiliates beyond their direct impact, can be expressed using output and employment multipliers. Every $100 of output produced and every 100 jobs generated by air transport trigger additional demand of $325 and 610 jobs in other industries throughout the global economy. More than four and a half per cent of world economic output may be attributed to civil aviation (Source: ICAO). Expert studies from WTO show that “for every job saved by protectionist air transport policies, up to four can be lost in the economy through reduced tourism spending”.

2.11 Based on a study conducted by ICAO the total economic activity related to airline

services was estimated at $973 Billion of which provision of services accounted for $318 Billion, use of services $529 Billion and activity related to manufacturing of goods $126 Billion.


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2.12 Airlines are also labour intensive. Each major airline employs a virtual army of pilots,

flight attendants, mechanics, baggage handlers, reservation agents, gate agents, security personnel, cooks, cleaners, managers, accountants, lawyers, etc. Computers have enabled airlines to automate many tasks, but there is no changing the fact that they are a service business, where customers require personal attention. In the year 2000, more than 30.5 million jobs can be attributed to civil aviation (Source: IATA) this is broken up as follows :

Directly : 4.3 millions

Indirectly : 9.3 millions

Induced : 16.9 millions

2.13 Recent studies suggest that the drawbacks to national economies from protectionist aviation regimes dramatically outweigh the benefits, when measured in terms of GDP, tax revenues and jobs. WTTC's report “The Way Forward” makes a strong economic case for liberalisation, focusing on: the elimination of market controls; privatization; cross border ownership; an end to subsidies; and fair competitive opportunities.

2.14 Due to its role as a facilitator of international trade in goods and services, particularly

tourism, civil aviation holds important significance for developing nations like India and has the potential to significantly improve, both directly and indirectly, the economic prospects of the nation.


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THE IMPACT OF CIVIL AVIATION ON TOURISM

2.15 The term ‘Tourism’ is often associated with Leisure / Holiday visitors. It therefore needs to be clarified that in the context of this report and the tourism industry the term ‘tourist’ includes several segments of visitor arrivals as explained below. The definition of tourism is - “Activities related to persons traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes”. (Source UN / WTO 1993). This would therefore include :

Domestic tourism, involving residents of the given country traveling only within the

country; on business or leisure.

Inbound tourism, involving non-residents traveling in the given country on business, leisure or Visiting Friends & Relatives (the VFR segment that includes NRI’s).

Outbound tourism, involving Indian residents traveling to another country on

business, pleasure or for employment (Overseas Foreign Workers -OFW). 2.16 It thus needs to be borne in mind that tourists do not include only leisure travellers and

as such all data on international visitors contained in this report includes all segments of travellers as mentioned above.

2.17 Travel & Tourism is the world's biggest industry, accounting for nearly 200 million jobs,

and over 10 per cent of world GDP, more than US$ 3,500 billion. It is a "high-multiplier-effect" industry - it employs large numbers of people, and requires large amounts of local inputs for ongoing operations. WTO’s ‘Tourism 2020 Vision’ forecasts that international arrivals are expected to reach over 1.56 billion by the year 2020 of which 1.18 billion will be intra-regional and 377 million will be long-haul travellers. It is expected that, that long-haul travel worldwide will grow faster, at 5.4 per cent per year over the period 1995-2020, than intra-regional travel, at 3.8 per cent. Details on forecasts by WTTC (Tourism Satellite Accounting Research) for India’s Travel & Tourism Industry are provided below.

2.18 In 2003, India's Travel & Tourism Industry is expected to generate Rs. 529.4 billion

(US$ 10.5 billion) - 2.0 per cent of Gross Domestic Product and 11,093,100 jobs - representing 2.7 per cent of total Employment.

2.19 The Travel & Tourism Economy (direct & indirect impacts) is expected to generate -

• Rs. 1,274.6 billion (US$ 25.3 billion) - 4.8 per cent of Gross Domestic Product, • 23,839,800 jobs - 5.8 per cent of total Employment, • Rs. 234.5 billion (US$ 4.6 billion) of Exports, services & merchandise - 5.9 per cent

of total Exports, • Rs. 412.9 billion (US$ 8.2 billion) of Capital Investment - 7.0 per cent of total

investment, • Rs. 32.5 billion (US$ 0.6 billion) of Government Expenditures - 1.0 per cent share.

2.20 The forecast for Travel & Tourism demand is expected to total 7.4 per cent real growth

in 2003, and 8.8 percent real growth per annum between 2004 and 2013. This assumes no constraints in airline seat capacity.


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AVIATION INDUSTRY - CONTRIBUTION TO FDI

2.21 The growth of both inward and outward foreign direct investment has been an integral

part of the globalization of the world economy. Inward investment brings with it important benefits to the recipient country, the more obvious ones being in terms of increased employment and output, but also in the transfer of technology and new management techniques from overseas.

2.22 The development of the software industry, call centers, back office processing and the

plethora of other services that have been unleashed by the availability of advanced telecom infrastructure coupled with the availability of educated, English speaking workforce makes the Information Technology Enabled Services (ITES) a future driver of growth in the Indian service sector, which like exports is dependant on transport links.

2.23 A wide range of factors play a part in determining the scale and distribution of foreign

direct investment. These would include labor costs in the recipient country, market access; political stability; tax and other incentives; and trade policy. But the trend towards globalization is making good international communications and transport links an increasingly important component of firms’ investment decisions.

2.24 Good transport links, flight frequencies and choice of destination are essential if India is

to attract investment in high technology sectors such as electronics, as well as in industries such as the car industry, which depend increasingly on just-in-time deliveries. Though not an overriding consideration, air connectivity does play an important role in encouraging and facilitating FDI to a nation. The illustration below provides details on the inflow of FDI into India over a 10 yr period.

EXHIBIT 2.6

FOREIGN DIRECT INVESTMENT ANNUAL INFLOW

4.84.74.0

3.4

4.6

3.0

2.2

1.00.60.30.1

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000-01

2001-02

US

$ B

illio

ns

Cumulative FDI Approval 1991-2002(August): US$ 76.15 billion / Inflow 1991-2002 (August): US$ 30.98 billion


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2.25 The ratio of FDI inflow in percentage terms to India’s GDP has ranged from 0.6% in

1995 to 0.5% in 2000. In comparison FDI inflows have contributed 5.1% in 1995 to 3.8% in 2000 to China’s GDP. Improved air connectivity would be one factor to increase FDI inflows into India especially ensuring links with the key sources of FDI like the United States, UK, and Continental Europe.

2.26 Exhibit 2.7 provides details on growth in weekly international seat capacity for select

countries between 1989 & 2000. Seat capacity on all international routes to India registered a growth of 40% between 1989 and 2000: In comparison, China saw a growth of 485% and even countries like U.K. the U.S. with a relatively higher base than India, recorded a higher growth rate at 101% and 61% respectively.

EXHIBIT 2.7 GROWTH IN AIR SEAT CAPACITY

(PER WEEK / EACH DIRECTION)

Country Yr 1989 Yr 2000 % change

China 47,725 279,404 485%Spain 189,390 656,596 247%Germany 479,208 1,367,185 185%Turkey 68,679 175,869 156%Portugal 61,123 143,063 134%Ireland 88,375 200,998 127%Italy 269,287 602,903 124%Sweden 95,975 212,870 122%UK 743,460 1,493,371 101%France 489,027 887,427 81%Japan 370,134 631,507 71%Canada 289,111 481,182 66%USA 1,238,904 1,989,339 61%India 111,277 155,693 40%

Country Yr 1989 Yr 2000 % change

China 47,725 279,404 485%Spain 189,390 656,596 247%Germany 479,208 1,367,185 185%Turkey 68,679 175,869 156%Portugal 61,123 143,063 134%Ireland 88,375 200,998 127%Italy 269,287 602,903 124%Sweden 95,975 212,870 122%UK 743,460 1,493,371 101%France 489,027 887,427 81%Japan 370,134 631,507 71%Canada 289,111 481,182 66%USA 1,238,904 1,989,339 61%India 111,277 155,693 40%

Source : OAG, 2000

Impact of Civil Aviation Policies on Tourism In India ( 13 ) Capacity & Load Factors

M&A

3.1 This section of the report establishes the context and rationale for the development of

objectives and initiatives for change in India’s current approach to the international air services market. It examines the current provision of seat capacity to India at an aggregate level as well as on a city pair basis. The Consulting Team has attempted to present a case for and assist government and industry stakeholders to address capacity shortfalls or excesses in a timely and proactive manner.

3.2 GOI needs to achieve significant growth in India’s international tourism arrivals and

receipts. Air services, air seat capacity and pricing are proving to be critical barriers to India’s ability to become competitive in the global tourism market. The Ministry of Civil Aviation, as regulator of the aviation sector, needs to take a stance on key issues so as to:

• Ensure adequate frequencies / capacity to core markets for tourism & investment, • Ensure that India has strong flag carrier/s who are investing in increasing capacity

to meet future demand and growth, • Ensure a competitive regulatory framework so as to safeguard consumer interests

including pricing & service levels. 3.3 Exhibit 3.1 below benchmarks international airlines operating to Indian cities against

peer cities in S.East Asia. It may be inferred from this exhibit that while Delhi and Mumbai are served by 37 & 34 airlines respectively, 79 airlines operate to Bangkok; more than double of either of India’s two gateway cities.

EXHIBIT 3.1

AIRLINES OPERATING – PEER COMPARISON

Number of Airlines Operating

8

10

13

34

37

43

49

64

67

79

0 10 20 30 40 50 60 70 80 90

Trivandrum

Kolkatta

Chennai

Mumbai

Delhi

Sydney

Tokyo

Singapore

Hongkong

Bangkok

Number of Airlines Operating

8

10

13

34

37

43

49

64

67

79

0 10 20 30 40 50 60 70 80 90

Trivandrum

Kolkatta

Chennai

Mumbai

Delhi

Sydney

Tokyo

Singapore

Hongkong

Bangkok

Source: CRISIL / M & A survey

3. CAPACITY & LOAD FACTORS


M&A

3.4 Similarly Exhibit 3.2 brings out the marked discrepancy in air connectivity from Mumbai

compared with Hong Kong relative to their respective key source markets.

EXHIBIT 3.2 HONG KONG Vs MUMBAI – CONNECTIVITY COMPARISON

From Hong Kong

Destination Flights/Week

Bangkok 115 Taipei 233 Singapore 157 Tokyo 92 London 75

From Hong Kong


Bangkok 115 Taipei 233 Singapore 157 Tokyo 92 London 75

c


Dubai 30 Muscat 24 Singapore 19 Paris 13 London 12

From Mumbai

c


Dubai 30 Muscat 24 Singapore 19 Paris 13 London 12

From Mumbai

Source: CRISIL / M & A survey

INDIA’S AIR CONNECTIVITY – FLAG CARRIER & OTHER AIRLINES

3.5 Exhibit 3.3 depicts the availability of direct services from India’s key and emerging source markets in approximate order of Importance. Three of India’s key source / emerging markets currently have no direct air services and nearly half of our key source markets are currently not served by an Indian flag carrier on a direct service.

EXHIBIT 3.3

AIR SERVICIES FROM KEY / EMERGING SOURCE MARKETS

Direct Services AI/ IA Foreign Carrier

US

UK

Sri Lanka

France

Germany

Canada

Japan

Australia

Malaysia

Italy

Singapore

Netherlands

Israel

Switzerland

Spain

Korea

South Africa

Direct Services AI/ IA Foreign Carrier

US

UK

Sri Lanka

France

Germany

Canada

Japan

Australia

Malaysia

Italy

Singapore

Netherlands

Israel

Switzerland

Spain

Korea

South Africa


M&A

SEAT CAPACITY & LOAD FACTORS 3.6 In assessing the situation with regard to seat capacity in the country, the most important

indicator is load factor for each city pair (routing from origin to destination). Obtaining authentic data for in-bound and out-bound passenger traffic and seat capacity, so as to arrive at average load factors has been an extremely difficult and arduous task. The Consulting Team has tapped various data sources and the information contained in this report, even though it does not address 100% of the market, is considered to be from reliable sources and thus representative.

3.7 For the calendar years 2000, 2001 and 2002 seat capacity and revenue passenger

traffic has been obtained from the International Civil Aviation Organization (ICAO), a UN agency that is responsible for establishing international standards, recommended practices and procedures covering the technical, economic and legal fields of international civil aviation operations. The data for these years has been obtained from the “ICAO Statistics Programme” on payment of fees and has been recompiled by the Consulting Team. ICAO obtains this data directly from airlines; under Article 67 of the Convention on International Civil Aviation, each State undertakes that its international airlines shall file traffic reports, cost statistics and financial statements with ICAO.

3.8 The Consulting Team has also independently carried out compilations of seat capacity

from airline time tables. However these are point in time compilations where frequent changes in flight pattern, type of aircraft used and frequencies lead to inaccuracies. It was therefore felt more appropriate to utilise ICAO data even though this only addresses approximately 60% of the total flights to & from India in 2001 and a lesser proportion in 2002.

3.9 Unfortunately the data provided does not include figures for certain key carriers

(especially 2002 where even Air India’s data is not available) who have not submitted returns to ICAO and are therefore excluded from the compilation. The more important airlines that are omitted from this analysis include Emirates (present capacity approx. 10,300 seats per week), Gulf Air (10,600 seats per week), Saudia (8,500 seats per week) Syrian Arab Airlines, Yemenia Yemen Airlines and a few others.

3.10 For the purposes of this exercise, the origin of all city pairs is the last port of call before

India. It therefore follows that long haul destinations such as the USA where there are no direct flights to India, will not figure as passengers from the USA for example, traveling to India, would normally travel through the UK or Europe or from the West Coast via the Far East.

3.11 The current trend in civil aviation is for point to point flights. The earlier concept of

hopping flights (that are still popular with Air India) are now outdated. Most recognised airlines concentrate on efficient point to point services. Where hoppers still operate, the last port of call outside India is taken as the origin. Similarly where a flight touches more than one port of call in India on its way overseas, the last port of call is used in the city pair analysis provided.


M&A

3.12 In aviation parlance it is normally accepted that where average load factors year round

exceed 70%, especially in geographic areas / locations where there is high seasonal variation, there is a case for increasing capacity. Taking into account seasonality, load factors in excess of 70%, would normally result in unavailability of seats, as we witness in India during the peak season. Based on discussions with airline officials the 70% norm needs to be seen in the light of several factors which include the distance flown, type of aircraft used, operating costs (fuel), royalties paid and ticket pricing. Therefore low yielding routes would need higher average load factors to ensure airline profitability and induce them to increase seat capacity.

3.13 In addition if an airline is already flying to a particular location, they incur a level of fixed

costs, which would only increase marginally with an increase in frequencies / capacity. During the survey conducted all airlines flying less than daily frequencies to a particular location, expressed interest in increasing to daily frequencies.

3.14 Based on the information provided by ICAO, load factors by the top 20 city pairs to India

for the calendar years 2000, 2001 and 2002 are provided in Exhibit 3.4 overleaf. These 20 city pairs alone account for over 55% of the total reported international passenger traffic. A comprehensive listings are provided in Appendices II to IV.

3.15 It should be noted that the city pairs listed in this exhibit do not include the important

Gulf carriers (or Gulf routes), had this data been available then some of Gulf routes would have figured prominently on the list of the top 20 city pairs. In order to put traffic patterns in perspective Exhibit 3.5 that follows provides details of passengers carried, by city pair in FY 2002 as reported by the DGCA. As may be noted 6 of the top 20 are Gulf routes. Mumbai – Dubai tops the list. Comprehensive data by city pair is provided in Appendix V.

3.16 It needs to be borne that India was severely affected during the peak season in CY

2001 due to the post September 11 aftermath. This is reflected in the lower load factors when compared with CY 2000. For the calendar year 2000, the top 20 city pairs had a load factor of 81.5%, in 2001 – 73.4%, and in 2002 - 75.9%. Had the Gulf carriers been included the load factors in all these years would have been higher.

3.17 It needs to be noted that the purpose of the data provided in Exhibit 3.4 and the country

wise analyses provided in Exhibits 3.6 to 3.13 is to highlight load factors and not passengers carried or capacity. As has been explained earlier, the data reported by ICAO is not complete as all airlines have not provided information. In order to gauge the importance of the important city pairs based on actual passengers carried, information provided by DGCA for FY 2002 is provided in Exhibit 3.5.


M&A

EXHIBIT 3.4

LOAD FACTORS TOP 20 CITY PAIRS CY 2002, 2001 & 2000 SORTED BY PAX VOLUME ON CY 2001

Sr.No Traffic Load Traffic Load Traffic Load

(revenue pax) Factors (revenue pax) Factors (revenue pax) Factors

1 Chennai Singapore 231,762 83.6% 485,276 77.4% 523,278 84.1%

2 Delhi London 236,783 74.1% 467,219 70.0% 414,948 81.6%

3 Mumbai London 177,055 76.1% 408,434 76.9% 439,544 79.4%

4 Mumbai Singapore 245,126 84.1% 315,651 70.5% 211,898 87.2%

5 Chennai Colombo 230,255 65.6% 314,542 76.6% 281,962 77.7%

6 Mumbai Frankfurt 206,494 77.7% 254,544 75.4% 273,777 80.0%

7 Delhi Bangkok 195,926 85.3% 240,478 69.6% 237,422 83.3%

8 Delhi Amsterdam n.a n.a 237,233 78.3% 86,225 80.7%

9 Chennai Kuala Lumpur 169,721 75.2% 232,765 77.0% 232,691 84.9%

10 Mumbai Amsterdam n.a n.a 229,004 77.2% 113,284 86.0%

11 Delhi Paris n.a n.a 204,310 74.1% 216,955 78.2%

12 Delhi Frankfurt 222,849 78.6% 200,244 72.6% 216,644 78.4%

13 Delhi Singapore 173,041 80.8% 189,883 75.1% 210,554 85.6%

14 Delhi Hong Kong 94,008 72.1% 169,865 54.3% 87,562 84.8%

15 Mumbai Bangkok 201,772 80.5% 138,523 81.2% 143,222 87.8%

16 Mumbai Paris n.a n.a 115,699 77.2% 102,187 80.7%

17 Trivandrum Colombo 93,649 52% 101,375 79.5% 88,931 76.2%

18 Delhi Kathmandu n.a n.a 89,280 61.6% 72,146 68.8%

19 Bangalore Singapore n.a n.a 72,579 68.6% 75,702 77.5%

20 Kolkata London 36,193 71% 72,398 73% 11,042 76.6%

Total 2,514,634 75.9% 4,539,302 73.4% 4,039,974 81.5%

Others 1,151,089 67.5% 3,674,041 65.5% 3,973,100 67.9%

Grand Total 3,665,723 71.7% 8,213,343 69.5% 8,013,074 74.7%

CY 2000CY 2001City Pair CY 2002

Source: ICAO; CRISIL / M&A compilation

3.18 The load factors on most city pairs are significantly high over these 20 city pairs (which

exclude the Gulf routes). This is an ‘overall’ approach, analysis of load factors by source markets is considered to be a more logical and necessary approach. Load factors achieved, by city pair, with India’s key source / destination markets are provided later in this Section.


M&A

3.19 Exhibit 3.5 below provides details of passenger traffic for the top 25 city pairs – including

the Gulf routes – as reported by the DGCA for FY 2002. Based on this data the top 25 routes account for over 50% of traffic to and from India. Based on the DGCA data analysed there are about 150 city pairs connected with India.

EXHIBIT 3.5 PASSENGER VOLUMES FOR TOP 25 CITY PAIRS FY 2001/02

Sr. No Total Share (%)

1 Mumbai Dubai 658,253 5.5%2 Chennai Singapore 436,203 3.7%3 Mumbai Riyadh 337,189 2.8%4 Mumbai London 308,239 2.6%5 Chennai Colombo 300,846 2.5%6 Delhi London 286,611 2.4%7 Mumbai Singapore 281,584 2.4%8 Mumbai Muscat 271,063 2.3%9 Mumbai Frankfurt 239,452 2.0%

10 Delhi Bangkok 234,254 2.0%11 Chennai Kualalumpur 227,575 1.9%12 Mumbai Jeddah 218,245 1.8%13 Mumbai Amsterdam 214,951 1.8%14 Delhi Dubai 212,837 1.8%15 Delhi Frankfurt 197,031 1.7%16 Delhi Kathmandu 192,963 1.6%17 Delhi Singapore 192,637 1.6%18 Delhi Amsterdam 186,419 1.6%19 Mumbai Kuwait * 173,133 1.5%20 Delhi Paris 167,974 1.4%21 Calcutta Dhaka 151,342 1.3%22 Thiruvananthapuram Muscat 143,179 1.2%23 Mumbai New York 142,985 1.2%24 Mumbai Paris 142,106 1.2%25 Calcutta Bangkok 140,280 1.2%

Total 6,057,351 50.9%

Others 5,850,422 49.1%

Grand Total 11,907,773 100.0%

City Pair

Source: DGCA Note: * Outbound traffic figures for Kuwait have been assumed at 2002 /03

levels as 2002/01 figures were unavailable


M&A

3.20 Exhibit 3.6 below provides an analyses of ICAO data (sorted on load factors achieved in

2001) to highlight routes with high load factors. For the purpose of this exercise routes with less than 20,000 pax in the year have been excluded.

EXHIBIT 3.6

LOAD FACTORS TOP 20 CITY PAIRS CY 2001 & 2000 SORTED BY HIGHEST AVERAGE LOAD FACTOR IN CY 2001

Sr.No Traffic Traffic Load

(revenue pax) Inbound Outbound Average (revenue pax) Factors

1 Calicut Abu Dhabi 44,960 82.2% 86.2% 84.2% 35,453 87.5%

2 Bangalore Frankfurt 21,621 81.9% 84.7% 83.3% n.a n.a

3 Chennai Frankfurt 99,332 80.6% 85.0% 82.8% 101,076 82.8%

5 Trivandrum Male 69,383 82.9% 81.5% 82.2% 70,666 71.4%

6 Trivandrum Dubai 54,226 71.8% 91.7% 81.8% 53,690 77.0%

7 Chennai London 65,958 81.7% 81.1% 81.4% 68,877 81.7%

8 Mumbai Bangkok 138,523 81.1% 81.0% 81.2% 143,222 87.8%

9 Abu Dhabi Delhi 22,880 81.1% 80.9% 81.0% 18,195 83.9%

10 Tiruchirapally Colombo 40,833 85.2% 76.1% 80.7% 36,174 82.0%

11 Delhi Riyadh 33,209 67.5% 93.4% 80.5% 35,391 81.4%

12 Trivandrum Colombo 101,375 79.0% 79.9% 79.5% 88,931 76.2%

13 Delhi Dubai 80,634 70.0% 88.7% 79.4% 84,868 76.7%

14 Delhi Amsterdam 237,233 73.6% 83.1% 78.3% 86,225 80.7%

15 Chennai Singapore 485,276 78.9% 76.0% 77.4% 523,278 84.1%

16 Mumbai Amsterdam 229,004 74.8% 79.5% 77.2% 113,284 86.0%

17 Mumbai Paris 115,699 72.3% 82.0% 77.2% 102,187 80.7%

18 Chennai Kuala Lumpur 232,765 75.4% 78.7% 77.0% 232,691 84.9%

19 Mumbai London 408,434 75.2% 78.7% 76.9% 439,544 79.4%

20 Chennai Colombo 314,542 77.0% 76.3% 76.6% 281,962 77.7%

Total 2,795,887 77.5% 82.3% 79.9% 2,515,714 81.2%

CY 2000CY 2001City PairLoad Factors


M&A

LOAD FACTORS ON KEY SOURCE & DESTINATION MARKETS

3.21 The key source and destination markets covered in the exhibits that follow include the United Kingdom, France, Germany, Malaysia, Netherlands, Singapore and Thailand. Unfortunately as mentioned earlier, U.A.E. & Gulf traffic data was not available; should ICAO have reported statistics, these markets would have figured prominently on this list.

3.22 The load factors depicted in the following exhibits relate to averages for the entire year.

It needs to be recognised that due to the seasonality factor, there is, as is well known, serious bunching of traffic in the peak periods which for source markets are from October to March and for Indian residents traveling overseas is between April and July.

The UK

3.23 UK is by far the single most important source market for India covering a wide segment of traffic which includes traffic originating in North America and covers all segments of U.K. visitors that includes business, leisure and VFR.

3.24 Load factors by airline to all Indian cities connected by direct flights to the U.K. are

provided in Exhibit 3.7 below. As may be noted, load factors in CY 2000 which is considered more representative than 2001, to Mumbai, Delhi and Chennai are either in the late 70’s or early 80’s. The average load factor in 2002 which was still partially affected by 9/11 was 75.4%.

EXHIBIT 3.7

LOAD FACTORS FOR KEY MARKETS UNITED KINGDOM

CarrierTraffic Load Traffic Load Traffic Load

(revenue pax) Factor (revenue pax) Factor (revenue pax) Factor

MumbaiBritish Airways 177,055 76.1% 215,714 78.2% 220,656 79.3%Air India 192,357 75.6% 218,888 79.6%

177,055 76.1% 408,071 76.9% 439,544 79.4%

DelhiBritish Airways 189,288 73.1% 201,386 70.3% 242,292 83.8%Air India 140,222 74.3% 147,877 82.1%United 71,763 62.4%Virgin Atlantic 47,495 77.7% 53,848 69.2% 24,413 63.2%

236,783 74.1% 467,219 70.0% 414,582 81.6%

ChennaiBritish Airways 58,787 79.5% 65,958 81.4% 68,877 81.7%

KolkataBritish Airways 36,193 71.3% 72,398 73.0% 11,042 76.6%

Total 508,818 75.4% 1,013,646 75.3% 934,045 79.8%

CY 2001 CY 2000

service discontinuednot reported

CY 2002

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Source: ICAO; CRISIL / M&A compilation


M&A

3.25 Discussions held with British Airways and Virgin Atlantic reveal that the U.K. airlines, are extremely keen to increase seat capacities on any of these routes as they believe that market demand is sufficient to support double present capacity. They also mentioned their interest in Bangalore and Hyderabad as additional points of call.

3.26 Over the recent years Emirates and Gulf Air have been permitted significant additional

seat capacity. Unfortunately figures are not available but it is a well known fact in aviation circles, that a lot of the European and US bound traffic is in fact transiting through the Gulf / Emirates. Capacity to the UK is effectively therefore spread over more than just the airlines mentioned in the exhibit above.

3.27 Favouring Gulf countries for political and other reasons has provided a safety valve in

terms of seat capacity, however it may be far more appropriate to allow UK airlines higher seat capacity and for Air India to augment its own capacity to this market.

Germany

3.28 Details on load factors for Germany to the major metros in India are provided below. Chennai and Bangalore have exceedingly high load factors and are obvious growth markets for Lufthansa. The overall load factor for Lufthansa for all its India routes combined in CY 2002 was 83.3%.

EXHIBIT 3.8 LOAD FACTORS FOR KEY MARKETS

GERMANY



MumbaiLufthansa 206,494 77.7% 152,687 75.4% 160,738 78.7%Delta 101,216 75.3% 113,039 81.9%

206,494 77.7% 253,903 75.4% 273,777 80.0%

DelhiLufthansa 222,849 78.6% 199,975 72.6% 216,547 78.4%

222,849 78.6% 199,975 72.6% 216,547 78.4%

ChennaiLufthansa 105,505 87.1% 99,332 82.8% 101,076 82.8%

BangaloreLufthansa 68,616 89.9% 21,621 83.3%

Total 603,464 83.3% 574,831 78.5% 591,400 80.4%

CY 2000CY 2001CY 2002

via Paris��

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Source: ICAO; CRISIL / M&A compilation 3.29 Germany and other European countries, apart from traffic originating from those

countries, carry a lot of through traffic from the US and other parts. As gateway cities for our North American source markets, they thus gain in importance.


M&A

Netherlands / France

3.30 Netherlands and France while important markets also serve as gateway cities for the North American traffic .The alliance between two major American airlines with the flag carriers of these European countries (Delta / Air France and North West / KLM) are partially responsible for high load factors achieved on these routes. .

EXHIBIT 3.9

LOAD FACTORS FOR KEY MARKETS NETHERLANDS

CarrierTraffic Load Traffic Load

(revenue pax) Factor (revenue pax) Factor

MumbaiNorthwest 170,060 78.8% 112,901 86.0%KLM 58,944 72.9%

229,004 77.2% 112,901 86.0%

DelhiKLM 133,726 81.0%Northwest 103,507 75.1% 86,225 80.7%

237,233 78.3% 86,225 80.7%

Total 466,237 77.7% 199,126 83.3%

CY 2000CY 2001

��

Note: CY 2002 data not reported by KLM / Northwest Source: ICAO; CRISIL / M&A compilation

EXHIBIT 3.10

LOAD FACTORS FOR KEY MARKETS FRANCE

CarrierTraffic Load Traffic Load

(revenue pax) Factor (revenue pax) Factor

MumbaiAir France 114,152 77.1% 107,412 80.7%

DelhiAir France 133,108 78.1% 137,022 81.4%Air India 71,202 67.7% 79,933 73.2%

204,310 74.1% 216,955 78.2%

Total 318,462 75.6% 318,814 79.4%

CY 2000CY 2001

��

Note: CY 2002 data not reported by Air France Source: ICAO; CRISIL / M&A compilation


M&A

3.31 Air France even in 2001, had load factors in excess of 77%. KLM / Northwest have

historically had high load factors (83.3% in 2000). 2002 load factors are unfortunately not available.

Malaysia

3.32 Malaysia is both a key source and destination market for India. This market is very skewed to Chennai due to cultural and other links. Load factors on the Chennai sector are therefore significant, here again representatives of Malaysian Airlines stated that they are seeking considerable increases in capacity on Chennai and other routes.

3.33 Malaysia is also gaining popularity with Indian holiday makers, partially due to

aggressive marketing by its tourism board combined with competitive costs associated with holidaying at this destination. Based on discussions with personnel at Malaysian Airlines, load factors over the last 12 month period have been in excess of 75% across all destinations and above 80% for Chennai.

EXHIBIT 3.11 LOAD FACTORS FOR KEY MARKETS

MALAYSIA



MumbaiMalaysian Airlines 81,234 44.2% 35,785 45.5%

DelhiMalaysian Airlines 88,463 71.3% 64,356 59.2% 45,304 80.2%

ChennaiMalaysian Airlines 80,306 71.0% 157,930 77.5% 165,524 85.3%Indian Airlines 48,842 71.1% 49,485 81.6%Air India 25,993 80.5% 28,134 84.6%

80,306 71.0% 232,765 77.0% 243,143 84.4%

BangaloreMalaysian Airlines 49,281 80.2% 23,688 59.2%

HyderabadMalaysian Airlines 23,253 75.3% 11,078 53.8%

Total 322,537 68.4% 367,672 66.8% 288,447 82.3%

CY 2000CY 2001CY 2002

��

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Note: CY 2002 data not reported by Air India / Indian Airlines Source: ICAO; CRISIL / M&A compilation


M&A

Singapore

3.34 Singapore even though a key source market, is a more important destination market for Indian traffic. It is the probably the most important South-East Asian destination and has habitually seen exceedingly high load factors as may be noted from Exhibit 3.12 below, especially for CY 2000. Overall load factors in CY 2002 were in excess of 77% and for Singapore Airlines well in excess of 80%.

EXHIBIT 3.12

LOAD FACTORS FOR KEY MARKETS SINGAPORE

CarrierTraffic Load Traffic Traffic Load


MumbaiSIA 220,473 89.7% 195,595 79.9% 211,643 87.5%Qantas 24,653 46.5% 117,488 60.5%Air India 2,568 29.4%

245,126 83.1% 315,651 70.5% 211,643 87.5%

DelhiSIA 173,041 80.8% 162,938 76.8% 177,400 86.8%Air India 26,945 66.7% 33,154 79.3%

173,041 80.8% 189,883 75.1% 210,554 85.6%

ChennaiSIA 231,762 83.6% 224,081 80.6% 246,833 90.4%Air India 136,957 81.5% 142,978 84.7%Indian Airlines 123,906 68.4% 133,467 73.9%

231,762 83.6% 484,944 77.4% 523,278 84.1%

KolkattaSIA 49,321 78.9% 43,979 74.3% 48,215 81.7%Royal Brunei 25,275 44.3% 25,715 60.1%

74,596 62.4% 69,694 68.3% 48,215 81.7%

BangaloreAir India 35,147 68.0% 42,828 82.7%Indian Airlines 37,432 68.8% 32,874 71.6%

72,579 68.6% 75,702 77.5%

TrivandrumSilkair 30,266 68.3% 29,949 67.6%

HyderabadAir India 31,974 75.6% 36,640 86.8%

Total 724,525 77.5% 1,194,991 72.0% 1,135,981 81.5%

CY 2000Load

CY 2001CY 2002

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M&A

Thailand

3.35 Thailand is an important destination market for Indian travelers. Load factors have been at significantly high levels, especially from Mumbai & Delhi, thus making a case for additional capacity from these gateway cities. Thai Airways has recently been granted an additional capacity of approximately 5,500 seats per week to five additional cities in India – Bangalore, Chennai, Gaya, Guwahati & Chennai. Air India too gains an equal number of seats to Thailand. This decision, is a welcome move as it is hoped this would alleviate the capacity shortage Mumbai & Delhi currently face .

EXHIBIT 3.13

LOAD FACTORS FOR KEY MARKETS THAILAND



MumbaiCathay Pacific 124,750 81.9% 125,029 81.9% 139,266 89.1%Thai Airways 77,022 78.3% 12,820 74.9% 3,768 58.3%

201,772 80.0% 137,849 81.3% 143,034 87.8%

DelhiThai Airways 195,926 85.3% 165,500 72.9% 169,987 85.5%Air India 50,465 69.3% 53,105 83.1%Indian Airlines 24,128 52.5% 13,842 63.6%

195,926 85.3% 240,093 69.5% 236,934 83.3%

ChennaiIndian Airlines 30,913 67.9% 26,365 69.4%

KolkataThai Airways 73,534 75.5% 74,631 74.9% 81,047 81.0%Indian Airlines 64,456 66.0% 73,780 59.4%Air India 6,566 86.6%

73,534 75.5% 139,087 70.4% 161,393 69.6%

Total 471,232 80.3% 547,942 72.3% 567,726 77.5%

CY 2002 CY 2000CY 2001

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INCREASES & DECREASES IN SEAT CAPACITY

3.36 In the period from September 11, 2001 to date, there have been several increases & decreases in seat capacity from India’s key source and destination markets. It needs to be noted that a number of the reductions in seat capacity relate to problems faced by the airline or economic / political conditions in the source / destination market and are generally not reflective of demand and / or commercial reasons pertaining to the Indian sector flown Exhibit 3.14 overleaf provides details of the increases & decreases in seat capacity from September 11, 2001. Some of the increases relate to the forthcoming winter / summer schedule and are not presently operative.


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EXHIBIT 3.14 FLIGHTS ADDED / DISCONTINUED AFTER “9/11” BY SOURCE MARKET

Added Discontinued Added Discontinued Difference

China / S. E Asia China 3 33,500 33,500 Korea (South) 2 29,300 29,300 Singapore 7 5 69,400 59,200 10,200 Taiwan 3 41,300 41,300 Thailand 10 2 244,460 21,200 223,260 Malaysia 8 157,064 157,064

Total 33 7 575,024 80,400 494,624

Europe Austria 2 3 10,200 15,300 (5,100) Belgium 3 37,600 (37,600) Denmark 5 67,900 (67,900) England 2 39,000 (39,000) France 3 50,232 39,300 10,932 Germany 8 139,800 139,800 Holland 7 102,300 (102,300) Italy 7 1 72,800 13,000 59,800 Switzerland 8 97,800 (97,800)

Total 17 32 273,032 412,200 (139,168)

North America (USA / Canada)U.S.A 7 126,300 (126,300) Canada 7 5 102,700 79,400 23,300

Total 7 12 102,700 205,700 (103,000)

Indian SubcontinentAfghanistan 5 52,100 52,100 Seychelles 1 5,800 5,800 Sri Lanka 11 81,000 81,000

Total 17 138,900 138,900

Middle EastIran 2 20,800 20,800 Jordan 1 10,700 10,700 Qatar 8 63,500 63,500 UAE 10 220,700 220,700 Saudi Arabia 3 46,800 46,800

Total 24 362,500 362,500

CIS Countries

Total 2 20,800 20,800

Grand Total 100 51 1,472,956 698,300 774,656

Sector Flights (per week) Approx Seats (Year)

Source – CRISIL / M&A Compilation


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3.37 Please refer Appendix IV & V for comprehensive information including frequencies and

seat capacities added / withdrawn by source market and by city pair respectively. The appendices also contain information on the approximate time frame when this change was effected and the airline involved. We would like to emphasize that the information provided in Exhibit 3.15 and 3.16 (that follows - compiled by Indian Airport) is from information gathered through interviews with industry players and other secondary sources. Thus the data in these exhibits may not be relied upon for completeness and does not mean that flights were not added / withdrawn on other city pairs.

3.38 The recent volatile economic and political climate world over, and the associated

uncertainty, has been the driver for many of the reasons as to why many European & North American airlines have withdrawn or reduced operations to India. United Airlines, Sabena, Canada 3000, Scandinavian Airlines System, All Nippon Airways, Swiss Air, Royal Nepal Airlines, North-West Airlines, Air France were some of the airlines that withdrew or reduced operations to India after September 11.

3.39 It is evident from these exhibits, that even though there has been an increase of over

774,00 seats since September 2001, capacity to Europe and America has in fact reduced by 242,000 seats per annum in each direction. It is important to address this considerable under capacity to these markets. The overall increase in seat capacity may help alleviate demand, but unless a higher proportion of capacity is granted on the European sectors, the benefits may not trickle down.

3.40 India risks losing business unless capacity is immediately increased. It could be argued

that lesser capacity on the west bound routes is not likely to impact greatly on overall requirements as the incremental Gulf capacity satisfies a portion of this demand. Granting of additional capacity to SE Asia, China and other new markets is about generating incremental business, not a replacement of services withdrawn on European sectors

3.41 The increases and decreases in seat capacity have also been compiled by city, to

provide an indication of how the Indian International Airports have gained or lost. From Exhibit 3.15 overleaf, it may be noted that Delhi and Mumbai have been subjected to significant reductions in seat capacity, whereas Cochin, Bangalore, Hyderabad and Chennai, as would be expected, have gained substantially.


M&A

EXHIBIT 3.15

FLIGHTS ADDED / DISCONTINUED AFTER “9/11” BY INDIAN AIRPORT

Added Discontinued Added Discontinued Difference

Amristar 1 10,400 10,400

Bangalore 16 - 203,980 203,980

Chennai 8 3 173,380 37,600 135,780

Delhi 31 32 402,632 444,600 (41,968)

Gaya - 30,700 30,700

Guwahati - 30,700 30,700

Hyderabad 9 81,100 81,100

Kochi 19 311,800 311,800

Kolkata 4 56,564 56,564

Mumbai 9 16 118,200 216,100 (97,900)

Thiruvanthampurum 2 15,000 15,000

Trichy 1 7,800 7,800

Varanasi 30,700 30,700

Grand Total 100 51 1,442,256 698,300 743,956 l

Sector Flights (per week) Approx Seats (Per Year)

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Source – CRISIL / M&A Compilation 3.42 The clear intention of the Ministry of Civil Aviation to promote the smaller more recent

developing international airports is laudable, however the strategic importance of Mumbai and Delhi as political / financial centers also needs to be taken into account. Discussions held with airline representatives and industry stakeholders corroborated by figures contained in this report, support the premise that even though considerable seat capacity has been granted to the smaller international airports, Mumbai and Delhi will continue to enjoy high load factors. This subject is discussed in more detail in Section 7 on Policy Recommendations.

3.43 To highlight the air seat capacity shortage in India during peak season, Express Travel

& Tourism carried out a survey of seat availability in December 2002 from two gateway cities – New Delhi & Mumbai. The results of the survey were published in their cover story: Space Jam – The Case For Open Skies (Issue dated 01 - 15 January, 2003) and are provided in Exhibit 3.16 below.


M&A

EXHIBIT 3.16

EXPRESS TRAVEL & TOURISM SURVEY

Airline Business Class Economy ClassEx Delhi

Cheapest Fare Class not available till March end.Higher Fare Class First available 01 Feb’03

Australian Airlines First available 03 Jan’03 Not available till March end.

British Airways First available 13 Jan’03 First available 17 Jan’03KLM First available 14 Jan’03 Cheapest Fare Class not

available till 18 March’03. Higher Fare Class First available 31 Jan’03

Lufthansa First available 14 Jan’03 Not available till March end.

Ex MumbaiDelta Airlines First available 08 Jan’03 First available 04 Feb’03.NorthWest Airlines First available 14 Jan’03 First available 14 Jan’03

Source: Express Travel & Tourism

Seat availability EFF. 01 January 2003 as on 24th December 2002

Air France First available 07 Jan’03

��

��

��

��

3.44 Excerpts of opinions expressed by industry stakeholders from the same article were :

o Praveen Chugh, Chairman, TAFI - North India - “Non-availability of seats is definitely jeopardizing tourism prospects of our country. Only adequate seat availability can ensure free flow of traffic to a destination.”

o Rajeev Kohli, Marketing Director, Creative Travel - “The lack of flights is most certainly affecting tourism. This is especially true now. When the travel advisories got lifted, there was a spurt in bookings for inbound travel to India towards the end of the year. And as there was no capacity to bring in the passengers, India lost that business. We ourselves saw a few group tours getting cancelled despite having ready clients. All because the agent was unable to get air seats. It was not so much a fear of getting stuck as it was a basic inability of getting the clients here. No self-respecting travel agent will send their clients to India without confirming both sectors of the ticket.”

o Sanjeev Joshi, Director, TIME - The Austrian tour operator Raiffeisen Reiseburo, was refused seats on Austrian Airlines in the last week of December ’02 where they had 100 people wait listed. This means we lost 100 potential clients who could have travelled to India. And they opted for some other destinations, most probably China as seats to China is not a problem at any given time.”


M&A

TICKET PRICES TO INDIA – A COMPARISON

3.45 There is an established correlation between demand and air fares. Airfares for city pairs with restrained capacity tend to be expensive, thus impeding growth of inbound international tourist traffic. Leisure consumers can, and do, choose from a variety of destinations, which have broadly comparable prices.

3.46 Foreign airline representatives believe that if allowed increase in frequencies and seat

capacities into India, airlines would achieve volumes of scale that would allow them to decrease fare prices without it negatively impacting yields to the airline. The logic propounded by the officials is that unit costs generally decline when airlines adds flights or seats on existing routes. They also added that world wide higher route frequencies especially on high volume business routes, due to the decrease in travellers’ time cost increase demand (the Mohring effect).

3.47 In order to compare fares to India with other competitive leisure destinations, return

ticket prices for economy class seats were obtained from major foreign carriers. These fares were then adjusted for distance variations and indexed on a per passenger kilometer basis to ensure comparability. The following illustrations provided examples of the current range of air fares for select destinations from four of India’s key source markets. Looking at the spread of pricing, India (Mumbai) appears to be the most expensive relative to competitive destinations with the exception of Beijing. It would thus appear that South East Asian / Pacific destinations are well integrated as substitutes for India with holiday makers.

EXHIBIT 3.17 INDEXED COST OF AIR TICKETS

FROM LONDON

119

10089

80 78 75

59

-

20

40

60

80

100

120

140

Beijing

Mumba

i

Hong K

ong

Bangk

okDub

ai

Singap

ore

Sydney

Inde

x

Source: British Airways


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EXHIBIT 3.18

INDEXED COST OF AIR TICKETS FROM PARIS

142

119

100

82 79 77 71

-

20

40

60

80

100

120

140

160

Beijing

Hong K

ong

Mumba

i

Bangk

ok

Jaka

rta

Singap

oreMan

ila

Inde

x

Source: Air France


FROM FRANKFURT

135

100 10094

8069

-

20

40

60

80

100

120

140

160

Beijing HongKong

Mumbai Dubai Bangkok Manila

Inde

x

Source: Lufthansa


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FROM SINGAPORE

100 96

76

5039

0

20

40

60

80

100

120

Bombay Colombo Dubai Sydney U.S (L.A)

Inde

x

Source: Singapore Airlines

3.48 The Pacific Asia Travel Association (PATA) conducted a similar simulation exercise

whereby a cross-section of Pacific Asia cities were selected as potential destinations for a Los Angeles-based leisure traveller’s visit in late April 2001. These destinations include Auckland, Bangkok, Beijing, Denpasar, Kota Kinabalu, Mumbai, Palau and Singapore. Using the online booking agency Expedia, return air fares to these destinations were then analysed. As a basis of comparison, two different measures were used :

o Average airfares – The absolute U.S. dollar cost of visiting each destination.

o Average E-fares per mile – This measure took into account the variations in distances from Los Angeles to the different destinations.

3.49 Based on the analysis of the average air fare measure, Singapore was the least

expensive destination from Los Angeles with an average return fare of US$ 731, followed by Beijing (US$ 786) and Bangkok (US$ 893). On the other end of the e-fare range were Palau (US$ 1,863) and Mumbai (US$ 1,911). According to the average air fare per mile measure, Singapore was the least expensive destination with an average return fare per mile of US Cents 4.17, followed by Bangkok (US Cents 5.41) and Denpasar (US Cents 5.74). On the other extreme were Kota Kinabalu (US Cents 9.28), Mumbai (US Cents 9.33) and Palau (US Cents 11.91).


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WHAT THE AIRLINES & THE TRADE SAY / WANT

3.50 Based on the primary and secondary research conducted for this assignment, interesting snippets are reproduced below.

o Mr. Nabil Sultan, Emirates General Manager - India & Nepal.

“Emirates currently has 42 flights out of India from five destinations — Mumbai, Delhi, Hyderabad, Chennai and Kochi, and the plane load factor is nearly 85 per cent annually”. (May 21st 2003 Deccan Herald)

Would like to have daily operations to Kochi. The airline also wants to start daily direct flights to Kochi from Dubai , connect other cities like Bangalore and Kolkata, and wants to double its frequency out of Delhi. (October 7th 2002 - The Financial Express & Business Standard) -

o Mr. Saeed Parkar, Qatar Airways Regional Manager India (July 2nd 2003, Business

Line – The Hindu) “The airline's passenger load factor (PLF) is over 80 per cent for flights out of India. Our operations are pretty viable out of India. Our PLF is around 70 per cent for all flights”.

The airline plans to seek permission from the Government to operate daily flights out of Bangalore and add six more destinations in India during the year. The airlines would also be keen to start daily flights adding up to 1,500 seats per week out of Bangalore.”

o Mr. Sayed Aziz, Chief Executive Officer, Malaysian Airlines - (June 13th 2003, Crisil /

M&A survey) “Overall (excluding the SARS factor) Malayasian does a load factor of approximately 75% in India. On the Chennai sector, which is the most popular, around 85% would be the average, whereas Delhi is the lowest at approx. 65%.

Would like to do 7 weekly flights to all the locations and would like to double the capacity to Chennai.”

o Mr. Alok Sawhney, Commercial Manager, British Airways - (June 13th 2003, Crisil /

M&A survey) “Load factors on the Bombay – London route and from Bombay and Delhi to London are in the region of 85% year round. Kolkata is the only under performer.

Would like to double capacity on all routes except Kolkata. Would also like to operate services to Bangalore & Hyderabad.“

o Mr. Andrew Fyfe, General Manager, Virgin Atlantic, India -

"In January, the load factor was 83 per cent. In February, the airline registered a load factor of 96 per cent on the London-Delhi sector and 75 per cent on the Delhi-London sector. The advance bookings from now till the end of March are also encouraging at 68 per cent on the London-Delhi sector and 91 per cent on the Delhi-London sector." (March 08th 2003, Business Line - The Hindu)

Would like to increase Delhi from 2 to 7 flights per week and add 7 flights to Mumbai. (Crisil / M&A survey)


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o Mr. Peter M. Hill, CEO, Sri Lankan Airlines (July 29th, 2003, Business Standard) “The load factor on the India route has been around 90 per cent. India is a potential market for us not only due to geographical reasons, but because Indians feel at home in our country and there are no visa formalities.”

Looking at daily flights to most of the existing destinations on the India sector.

o Mr. Philip Vira Bunnag, GM - India & Bhutan, Thai Airways (September 18th 2002, Business Line - The Hindu) “The average passenger load factor on Thai Airways flights out of India is 75-80 per cent.”

o Air France officials (July 19th 2002, Business Line – The Hindu)

“At present, the airline is enjoying a passenger load factor of around 80 per cent.”

o Mr. Ong Boon Kim, GM, Singapore Airlines, Crisil / M&A survey “No immediate plans. However would like to increase seat capacity gradually.”

o Mr. John Andersen, Gulf Air, GM – India (Crisil / M&A survey) –

Expressed interest in Jaipur as a point of call, and would prefer to operate daily flights on all routes currently serviced by the airline.

o Mr. Tom Owen, Cathay Pacific Country Manager - India, Nepal and Bangladesh

(Exim India – Aviation section, July 2003) – “The airline aims for a double-digit growth in the next few years. We are at present small in India, but are working on that aspect and have plans to expand in the coming months. We would certainly like to fly daily from Mumbai and Delhi. Bangalore is next on our list."

o Mr. Avihu Egozi, El Al, GM – India & South Asia (Crisil / M&A survey)

Expressed interest in operating charters to Goa.

o Austrian Airlines, Bilateral Air Services Negotiations, June 2001 (Lok Sabha Unstarred Question No. 522) Austria requested for Mumbai as a point of call for their designated airline, were offered Hyderabad instead (still not flying to Mumbai).

o Officials Sources of the Korean Government (Jan. 3rd 2003, Business Line – The

Hindu) The airlines of Korea are keen to operate daily flights to Delhi and Mumbai, (presently 3 times per week from Mumbai & Delhi).

o Ashwini Kakkar , CEO & MD, Thomas Cook (India) Ltd (Crisil / M&A survey)

Seeks permission to operate outbound charter flights.

Impact of Civil Aviation Policies on Tourism In India ( 35 ) Demand For Air Travel

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CHARACTERISTICS OF BUSINESS / LEISURE TRAVELERS

4.1 When assessing demand for air seat capacity it is important to recognise some of the key characteristics of the Indian market for Inbound and Outbound traffic that are discussed below, these are : • Inbound and outbound traffic is almost entirely dependant on air travel to or from the

country. • The imbalance in inbound and outbound traffic. In FY 2002 there were 2.5 million

inbound visitors to the country and 4.2 million outbound Indian tourists. • A large proportion of the outbound traffic is related to the Middle Eastern ‘labour’

markets. • There is a distinct seasonality pattern, which varies by source market and

destination, overall April to September are the lean months. 4.2 Passengers demonstrate a range of demand characteristics, relating to time sensitivity,

complexity of itinerary, and product quality. Changes in the consumption of air travel are also attributable to changes in airfares, although business travel is generally less sensitive to changes in airfares than leisure travel. This is partly because business travellers often need to fly at short notice to specific destinations, and usually at company rather than personal expense.

EXHIBIT 4.1 DEMAND CHARACTERISTICS OF AIR TRAVEL

4. DEMAND FOR AIR TRAVEL


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4.3 Leisure travel is more discretionary, usually at personal expense and is often planned

well ahead. Many leisure travellers are visiting friends or relatives, and so have a specific destination, but others may choose between multiple destinations. Further, expenditure on leisure travel is discretionary, so it competes with expenditure on many other goods and services. Given the many possible substitutes, leisure travellers tend to be sensitive to changes in the overall costs of travel.

4.4 It needs to be recognised that air access contributes directly to the growth of the

different sectors of the economy and that diminution of air seats to India has serious detrimental effects on inbound leisure travel. An indicator of insufficient seat capacity is load factors. It is a commonly accepted principle, in the airline industry, that once average passenger load factors are in the region of 75 to 80% on a given route, there is a capacity constraint and potential customers are being turned away.

INDIA - A LONG HAUL DESTINATION

4.5 Modes of transport vary for countries depending on their geographic location and political / economic relations with their neighbors. India is a long haul destination for many of her key source markets for trade & tourism. Air access is thus the basic infrastructure required for the growth of international inbound tourism to India. In order to give a relative sense of the importance of air transport to each of the world regions, Exhibit 4.2 depicts the regional variations in the modes of transport utilised for travel worldwide over the past decade.

EXHIBIT 4.2

MODES OF TRANSPORT FOR INTERNATIONAL TRAVEL

0

20

40

60

80

100

Americas East Asia /Pacific

EuropeMiddleEast

SouthAsia

% AirSeaRailRoad

80% 58% 56% 50% 37%

0

20

40

60

80

100

Americas East Asia /Pacific

EuropeMiddleEast

SouthAsia

% AirSeaRailRoad

80% 58% 56% 50% 37%

4.6 The exhibit above reveals that 80% of all international visitors to South Asia (includes

India) arrived by air. An analysis of the various modes of transport utilised for international travel to India in FY 2001 (Exhibit 4.3 that follows) shows that this figure is even higher with 97% of all visitors to the country arriving by air.


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EXHIBIT 4.3

MODES OF TRANSPORT TO INDIA

97.2

1.1 1.8

Air Sea Land

% of Visitors

97.2

1.1 1.8

Air Sea Land

% of Visitors

Source: Tourist Statistics 2001, Department of Tourism, GOI Note: Bangladesh & Pakistan not included.

INDIA AIR TRAFFIC GROWTH

4.7 Indian international passenger travel experienced a notable expansion from 1996 to 2001. In total, 6.6 million inbound and outbound trips were made between India and other countries in 2001, a 21% increase from 1995. However, the number of Indian residents traveling to overseas destinations has been greater than the number of overseas visitors to India. The number of passengers carried to and from India grew at a compounded annual growth rate of 4.8% between 1996 – 2001; however compounded annual growth for inbound traffic averaged 3% while outbound traffic flows increased at 4.9%. The illustration that follows provides details on growth of air travel from / to India.

EXHIBIT 4.4 OUTBOUND Vs INBOUNT TRAFFIC FROM / TO INDIA

3.1

3.5

3.7

3.8

3.9

4.0

4.1

2.1

2.3

2.4

2.4

2.5

2.6

2.5

1995

1996

1997

1998

1999

2000

2001

Outbound (Mn)Inbound (Mn)

Source: DGCA


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MAJOR SOURCE MARKETS 4.8 An analysis of the India’s visitor arrivals data for 2002 reveals that inbound foreign

travellers originated mainly from the following source markets :

EXHIBIT 4.5 MAJOR SOURCE MARKETS FOR INDIA

1.1%1.3%1.4%1.4%1.8%1.9%2.0%2.3%2.5%2.8%

3.5%3.7%

4.6%14.1%

16.5%

UAEKorea (S)

NetherlandsItaly

SingaporeAustralia

NepalMalaysia

JapanGermany

FranceCanada

Sri LankaUSAU.K.

CY 2002

Source: Highlights Ministry of Tourism & Culture, Govt. of India.

4.9 India’s top 15 source markets accounted for 61% of total inbound passenger traffic in

the year ended April 2002. Of the 2.4 million arrivals, the U.K. and U.S. markets alone accounted for nearly 725,000 visitors. If visitors from Bangladesh, Nepal and Sri Lanka were to be excluded (assuming 2001 levels as 2002 statistics are not available) then the top 15 source markets would account over 80% of visitor arrivals. SEASONALITY - INBOUND

4.10 Air transport to and from India has suffered from capacity shortages for some years,

mainly as a result of difficulties within India’s own aviation sector and the slow pace of liberalization of the air transport market. The problem of restricted capacity is further exacerbated during peak season:- October to March for inbound visitors and April to June for outbound travelers. Exhibit 4.6 overleaf highlights month on month arrivals for the past three financial years.


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EXHIBIT 4.6

OVERALL SEASONALITY TRENDS OF VISITOR ARRIVALS

0%

2%

4%

6%

8%

10%

12%

14%

Janu

ary

Febru

ary

Mar

chApr

ilMay

June Ju

ly

Augus

t

Septe

mbe

r

Oct

ober

Novem

ber

Decem

ber

Months

% o

f T

ota

l Arr

iv

CY 2000 CY 2001 CY 2002

4.11 As may be noted from the exhibit above, the seasonal pattern of overseas visitors to

India is pronounced and clearly associated with India’s climatic seasons coupled with source market vacation patterns. The high season occurs between October to March with a peak in December / January. The low season falls in the summer and monsoon months with a trough in May / June comprising less than half of the visitor numbers of the peak months..

Source Markets

4.12 The seasonal patterns for arrivals into India vary to some extent by geographic region. For example, visitors from the U.S. & Europe are highly seasonal in their arrival pattern with a high propensity to travel in the winter months and a low propensity in the summer & monsoon period.

4.13 Visitors from Australia and S.East Asia follow similar patterns; however arrivals from

these source markets are higher during the October – December period, which is in contrast to arrivals from the U.S. & Europe where arrivals are higher in the Jan - March period. Visitors from Nepal & Sri Lanka display relatively less distinct variations between the high and low months.

4.14 During the course of this study several airline representatives and tour operators voiced

their concern of a lack of seasonal seat availability on a range of routes especially to the U.K., U.S and Canada,. The exhibits that follow depict trends in visitor arrivals by quarter for the North America & European markets in 2001. For a detailed overview of seasonality of tourist arrivals for India’s top 15 source markets please refer Appendix VIII.


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EXHIBIT 4.7 REGIONAL SEASONALITY OF ARRIVALS

EUROPE – UK & FRANCE

-20,00040,00060,00080,000

100,000120,000140,000160,000180,000

Ja n - M a r Apr- Jun Ju l - S e p O ct- De c

2001UK Fra nce

EXHIBIT 4.8 REGIONAL SEASONALITY OF ARRIVALS

NORTH AMERICA – U.S.A.& CANADA

-

20,000

40,000

60,000

80,000

100,000

120,000

Ja n - M a r Apr- Jun Jul - S e p Oct- De c

2001US A Ca na da

Source : DOT, Government of India

NRI Source Markets 4.15 The NRI forms an important part of the VFR segment. Source markets are analysed in

the exhibit that follows. This is based on Indian Citizens residing in these countries. The Indian community in the UK and US is believed to maintain stronger links than does the Indian community in the Caribbean (Trinidad, Fiji etc).


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EXHIBIT 4.9 INDIAN RESIDENT POPULATION OVERSEAS

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

USA* SaudiArabia

UK SouthAfrica

UAE Oman Kuwait Canada Bahrain Qatar

Top 15 Source Markets

Num

ber o

f Ind

ian

citiz

ens

(Mn)

Source: Ministry of External Affairs, GOI – Yr 2001.

Note – * Breakdown of Indian passport holders in proportion to total Indian population not available; total estimated Indian population size taken into account

Key Source markets are reflective of Indian passport holders living abroad and does not take into account people of Indian origin with foreign country passports.

MAJOR OUTBOUND SOURCE MARKETS 4.16 This section deals with overseas travel by Indians for reasons including for employment

purposes. Fueled by economic growth, growing affluence and higher discretionary incomes, international overseas travel has expanded considerably.

4.17 The number of overseas trips taken by Indian residents has increased steadily over the

years to reach 4.1 million trips in 2001, up from 3.1 million trips in 1995. The average annual growth rate between 1995 / 2001 for outbound travel was 4.9%; significantly higher than the growth rate for inbound travel at 3%. In 2001, Indian nationals spent approximately USD 2.6 billion overseas, which is a total of USD 645 per trip. The exhibit that follows provides details on the key destination markets for outbound travels in FY 2001. It may be noted that data has been extrapolated from the Air Transport Statistics Guide published by the DGCA as information on travel by destination market as published by the DOT, GOI, was not comprehensive.


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EXHIBIT 4.10

OUTBOUND TRAFFIC MARKETS

Yr 2001

2%

2%

3%

3%

3%

4%

4%

4%

5%

5%

6%

8%

9%

10%

16%

Switzerland

U.S.A

France

Malaysia

Nepal

Netherlands

Kuwait

Thailand

Germany

Srilanka

U.K.

Saudi Arabia

Dubai

Singapore

Gulf

Source : Air Transport Statistics 2000-01, Directorate General of Civil Aviation. 4.18 Of all the outbound trips undertaken 82% were to our top 15 destination markets. As

may be seen from the exhibit above, the Middle East accounts for the highest outbound traffic flows from India. The Gulf was the top destination for Indian travellers in FY 2001, accounting for 984,000 trips. Dubai, Kingdom of Saudi Arabia & Kuwait ranked 3rd, 4th & 9th respectively, accounted for just over 1.3 million trips. Yemen, Syria & Oman received just under 50,000 visitors. Combined, these destination markets accounted for over 2.3. million trips or 56.3% of total outbound traffic outflows.

4.19 South East Asian countries (Singapore. Malaysia & Thailand) are also experiencing

increased visitation, prompted partly by the more active promotion of tourism by government agencies in these countries, the expansion of the scope of Indian international business activities and visits to friends and family by members of Indian immigrants.

PURPOSE OF TRAVEL

4.20 A detailed breakdown of reasons for travel is not available, but it may be taken to include travel by Indians on Government and private sector business, holidays, VFR outbound, and other reasons such as education and medical purposes. The table that follows provides details on purpose of travel for select source markets.


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EXHIBIT 4.11 PURPOSE OF OUTBOUND TRAVEL

PurposeCountry U.S.A U.K. Germany Australia Singapore Thailand New Zealand

Year 2002* 2001 2001** 2002 2002 2002 2002

Leisure 28% 27.0% 20.0% 32.0% 42.0% 83.4% 49.5%Business 58% 31.0% 80.0% 26.0% 18.2% 10.6% 9.0%Business & Lesiure 2.8%VFR 58% 29.0% 21.0% 10.5% 24.7%MICE 13% 4.4% 2.1%Education 2.0% 6.0% 0.6%Employment 4.0%Not Stated / Other 11.0% 11.0% 17.0% 3.9% 17.0%In Transit 4.5%

Total 157% 100% 100% 100% 100% 100% 100%

Percentage of Total Indian Arrivals

Source: International Passenger Surveys, Respective National Tourist Offices Note: *Multiple responses **Estimated figures; German National Tourist Office 4.21 From the table above it may be inferred that there were notable variation of travel

purpose by destination market. For example, the U.S., Germany & U.K. have a relatively higher proportion of business and VFR segment travellers, while Thailand, Singapore & New Zealand receive a greater proportion of visits for leisure / vacation purposes. Southeast Asia (Thailand, Singapore and, increasingly Malaysia) are steadily gaining popularity as leisure destinations, partially due to aggressive marketing by these destinations and also due to the relatively cheap cost of holidaying - air fares and hotel prices are only nominally higher than for much of domestic travel within India itself.


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4.22 The exhibit below helps establish a picture of motivations of travel by Indian residents to

Europe from India’s two major airports – Mumbai & New Delhi.

EXHIBIT 4.12 PASSENGER PROFILE OF TRAVELERS TO EUROPE FROM INDIA

FY 2000

Occupation / Travel TypeDeparting from

Mumbai (% of Total)

Occupation / Travel TypeDeparting from

New Delhi (% of Total)

Multinational Employees 33% Multinational Employees 25%Software Industry Employees 16% Visiting Friends & Relatives 20%Visiting Friends & Relatives 15% Exporters 15%Diamond Trade 9% Software Industry Employees 10%Emigrants 6% Students 10%Unspecified 5% Emigrants 10%Attending Trade Fairs 4% Public Sector Employees 5%Entertainment 4% Unspecified 5%Ship's Crew 3%Offshore Workers 3%Students 2%

Total 100% Total 1%

Source: A leading European Airline OVERSEAS FOREIGN WORKERS

4.23 It is important to examine the Overseas Foreign Workers (OFW) segment, as there is a

clearly established link between labour outflows and the demand for outbound travel. Overseas employment provides a significant proportion of job opportunities for Indians and has thus been an important element in international travel for some years and has been boosted by the export of highly skilled technicians such as those employed in India’s information technology sector. 30% of NASA scientists, IBM and Microsoft employees are Indians and 12% of doctors in USA are of Indian origin.

4.24 The table overleaf examines recent trends in labour outflows and changes between

1998 and 2002 in the number of Indian nationals obtaining employment abroad. These figures should be read cumulatively when estimating OFW recurring traffic.


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EXHIBIT 4.13

DISTRIBUTION OF ANNUAL LABOUR OUTFLOWS FROM INDIA BY DESTINATION

('000)

Country 1998 1999 2000 2001 2002

Saudi Arabia 105,239 27,160 58,722 78,048 99,453 United Arab Emirates 134,740 79,269 55,099 53,673 95,034 Oman 20,774 16,101 25,155 30,985 41,209 Singapore 21,298 19,468 18,399 27,886 24,399 Bahrain 16,997 14,905 15,909 16,382 20,807 Qatar - - - 13,829 12,596 Malaysia - 62 4,615 6,131 10,512 Kuwait 22,462 19,149 31,082 39,751 4,859 Libya - 1,129 1,198 334 1,339 Others 33,654 22,309 32,003 11,645 13,765

Total 355,164 199,552 243,182 278,664 367,663

Source : Annual Report 2002-03, Ministry of Labour, Govt. of India & Past Volume. 4.25 The table shows that in numerical terms the most important market for Indian nationals

working abroad is the Middle East. Currently, 1.2 million Indian nationals reside in the Middle East of which a substantial amount are OFW’s. The Kingdom of Saudi Arabia tops the list of destinations, followed by the United Arab Emirates (UAE) and Oman. Other important markets include Singapore & Malaysia in S. East Asia.

4.26 These Indians employed overseas may be regarded as potential passengers not only

for outbound travel to the destination but also for vacation trips to and from India itself. In the past four years the requirement for outbound seat capacity from the overseas foreign worker segment alone (without taking into account holiday visits or returning workers) have been to the tune of 1.1 million seats of which 974,000 have been to the Middle East.

4.27 If one were to assume that each of these workers is employed for a period of 4 years

and makes a trip to India to visit family and relatives once every 2 years then the required seat capacity in FY 2002 would have been in the region of 1.2 million seats. Based on an average of 240 seats per aircraft this segment alone at an 80% load factor would utilise 8.6 flights per day. These are approximations as contracts of employment are generally for different lengths of time. However for the purpose of this analysis, these numbers are reflective of present and future demand levels of air travel for the OFW segment.

4.28 The importance of the OFW / NRI segment to the Indian economy is illustrated by the

fact that remittances to India have increased from US$ 2.3 billion in 1982 to US$ 12.1 billion in 2002 (Source – Ministry of Labour, GOI).


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SEASONALITY - OUTBOUND

4.29 The seasonal pattern of travel abroad is relatively even throughout the year for all types of travel combined, however leisure travel is predominantly during the summer months of late April to July, late October / early November (Diwali), and Mid-December / January (Christmas / New Year). The section that follows provide details on seasonal variations of outbound Indian visitors for select markets.

EXHIBIT 4.14

INDIAN OUTBOUND TRAFFIC PATTERNS TO THE U.K.- YR 2001

010203040506070

Jan-Mar Apr-Jun Jul-Sep Oct-DecQuarter

Arriv

als

(000

)

Source - British National Tourist Office

EXHIBIT 4.15 INDIAN OUTBOUND TRAFFIC PATTERNS TO AUSTRALIA

Source: Australia Tourism Commission


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EXHIBIT 4.16

INDIAN OUTBOUND TRAFFIC PATTERNS TO SINGAPORE- YR 2002

-

10

20

30

40

50

60

Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

Months

Arriv

als

(000

)

Source: Singapore Tourism Board

OUTBOUND TRAFFIC BY AIRPORT 4.30 The development of new airports and trend for point to point flights, has led to some

amount of shift in traffic from gateway cities to the new international status airports. This is borne out by the high traffic growth rates that have been registered for South Indian cities such as Thiruvanathapuram & Chennai. The results of a study undertaken by the AAI in 2000 revealed that 6% of Mumbai’s international outbound traffic originated from Hyderabad, this is indicative of demand that exists at the smaller cities. The exhibit that follows provides details on demand growth for outbound travel for six major international airports in India.

EXHIBIT 4.17

NUMBER OF INDIAN NATIONALS GOING ABROAD BY AIRPORT

City 1999 2000 2001 % change over 2000

Mumbai 18,36,094 16,80,997 16,84,554 0.2%Delhi 8,81,877 9,84,231 9,94,244 1.0%Chennai 4,38,740 5,75,488 6,05,704 5.3%Thiruvanathapuram 3,44,091 3,20,807 3,63,871 13.4%Kolkata 1,54,290 1,73,995 1,66,883 -4.1%Kozhicode 1,75,565 1,58,121 1,51,968 -3.9%Tiruchirappali 20,863 22,489 18,756 -16.6%

Total 38,82,876 39,82,069 40,66,837 2.1%

Source – Airport Authority of India


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4.31 The table reveals that Thiruvanathapuram recorded the highest rate of growth for

outbound travel at 13.5%. Chennai & Delhi also registered higher growth in outbound international traffic flows than the other Indian gateways. Kozhikode, Kolkata & Tiruchirapalli experienced a decline in outbound passenger numbers. The most important origin cities for outbound travel in numerical terms are Mumbai and New Delhi,. Together these two cities accounted for 66% of all international air travel from India.

GROWTH FORECASTS 4.32 The key driver for this report in respect of change for India’s international air services

policy is not only the lack of adequate air seat capacity currently but also the shift or change to be expected in the growth levels of future air traffic. There is a need to look at the projected passenger growth forecast for India as a basis for the requirements of sector. The table below examines expected passenger growth for air travel both domestically and internationally forecasts for FY 2004-2017

EXHIBIT 4.18

INDIA PASSENGER GROWTH FORECAST

Source – AAI & Foundation for Aviation & Sustainable Tourism 4.33 It is the opinion of the consulting team that forecasted air traffic growth is projected to be

far too low when viewed in relation to expected GDP growth and the state of the Indian economy.

Year Domestic Increase International Increase Pax (Mn) (%) Pax (Mn) (%)

2003-04 22.4 8.5 16.8 6.0 2004-05 24.4 8.5 17.8 6.0 2005-06 25.1 7.0 18.8 5.5 2006-07 27.9 7.0 19.8 5.5 2007-08 29.8 7.0 20.9 5.5 2008-09 31.9 7.0 22.1 5.5 2009-10 34.2 7.0 23.3 5.5 2010-11 36.5 7.0 24.6 5.5 2011-12 39.1 7.0 25.9 5.5 2012-13 41.4 6.0 27.2 4.9 2013-14 43.9 6.0 28.5 4.9 2014-15 46.6 6.0 29.9 4.9 2015-16 49.4 6.0 31.4 4.9 2016-17 52.3 6.0 32.9 4.9

CAGR 6.7% 5.3%

Impact of Civil Aviation Policies on Tourism In India ( 49 ) Bilaterals

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AIR SERVICE AGREEMENTS & BILATERALS 5.1 The fundamental principle of the bilateral system is that of bilateral reciprocity whereby

countries exchange rights on the basis of ‘equality of opportunity’. This essentially means that countries agree to exchange rights which enables them access to foreign markets to the same extent as the other country is able to gain access to their markets.

5.2 International Air transport services between two countries are determined by “Air

Service Agreements” (ASA). International scheduled commercial air traffic is made possible only by the Air Services Agreements (Bilaterals) in which governments typically exchange air rights (Freedoms) for the benefit of their respective carriers. These agreements specify the airlines of each country that can provide air services, the frequency of these services, and the points (cities) that can be served in each country. In addition, many bilateral air agreements contain provisions limiting the capacity that a carrier or carriers may operate by imposing a cap on the size of aircraft that may be employed or the weekly number of seats that may be offered. As a consequence, India’s trade, tourism and foreign income earnings are intrinsically related to the Air Service Agreements.

5.3 ASA’s are negotiated bilaterally and generally comprise of the actual agreement which

is entered into by the Governments of both countries. In addition airlines of the two countries enter into Memorandum of Understanding and / or an exchange of letters between the carriers on the technical and commercial arrangements agreed upon. This is sometimes accompanied by other less formal and less transparent understandings.

5.4 The commercial terms in the Indian context follow historical precedents, with countries

where India has old ASA’s these continue and it is only when additional capacity or rights are required by either country or with a new country, that capacity and commercial terms are negotiated first at a Government level and then between the airlines concerned. The commercial terms in the Indian and to some extent international context, normally consist of royalties or block seat arrangements. This is discussed in more detail later in this Section.

5.5 There exists a basic system of air service rights commonly referred to as ‘freedoms of

the air’. These freedoms provide the backbone for negotiating capacity rights between countries under each ASA. Details follow overleaf.

5. BILATERALS


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Air Freedoms Defined

5.6 The Air ‘Freedoms’ as they are referred to are defined by the illustrations that follow :

EXHIBIT 5.1


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5.7 The regulatory landscape of international air transport is changing very quickly reflecting

the dynamic growth of this sector. These changes have been brought about internationally so as to meet the increasing demand for air services around the world through more flexible approaches to regulation. Governments throughout the world are increasingly recognizing the need to adapt aviation policies, which have traditionally been more concerned with protecting the interests of their national airlines rather than the interests of the consumers or the broader interests of the economy.


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5.8 Over the past decade, many bilateral agreements have been re-negotiated to make

their provisions more flexible. Though there are degrees to which this has been done, these arrangements generally are more flexible (or abolish) state control over frequencies and seat capacity, reduce route restrictions, allow for multiple designation of airlines, have less prohibitive tariff regimes and promote fair and competitive practices. From January 1995 to December 2001, over 600 bilateral agreements were reportedly concluded or amended. About 70 per cent of these agreements and amendments contained some form of liberalized arrangements. (Source : ICAO). The definition and distinctions between the terms “open skies” and “liberalization” are provided below

Open Skies -- the term is used to denote a declaration by a government of unlimited

access to international routes to and from its airports by all foreign carriers, with no restraint on frequency or capacity, with or sometimes without reciprocal access for the airlines of the guarantee state.

Liberalisation -- the term denotes the progressive relaxation of hitherto rigid

government controls on routes, frequency and capacity mounted by airlines, usually on a reciprocal basis. Equivalent operating opportunities are granted to airlines from both countries which are parties to an agreement, to mount capacity according to their judgment of the state of the market and the airlines’ own priorities. (Source: Association of Asia Pacific Airlines).

5.9 The United States was the first country to liberalise its international air transport policy in

the 1970’s. Many other countries have since adopted a more liberal approach to bilateral arrangements. In 1992 the United States decided to pursue the so-called ‘open skies’ arrangements on a bilateral basis. This Open Skies policy of the US reflected a new approach to the international air services regulatory policy.

5.10 A number of countries have pursued liberalisation through so-called ‘open skies’

agreements. As of June 2002 some 85 “open skies” agreements had been concluded involving approximately 70 countries of which two-thirds of them involved the United States as one of the partners. However, exchange of broader or full market access rights is still very country-specific and most countries which have concluded bilateral “open skies agreements” did not as a general policy but did so on a case-by-case basis (ICAO).

5.11 Countries in the European Union, APEC and ASEAN have also pursued liberalisation

on a pluri-lateral and regional basis to various degrees. Among developing countries, significant liberalisation has taken place, for instance between Argentina and Chile, Ethiopia and the United Arab Emirates, Bahrain and Malaysia, Nepal and Macau etc. On a multi-lateral basis, the General Agreement on Trade in Services (GATS) has some very limited application to air transport. The table shown overleaf summarizes the changes in the “open market” bilaterals – vis-à-vis - the traditional approach.


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EXHIBIT 5.2 TRADITIONAL Vs CURRENT APPROACH TO BILATERALS

‘OPEN MARKET’ BILATERALS TRADITIONAL

Airlines ‘substantially owned and effectively controlled’ by own nationals

Multiple Single – some multiple in US bilaterals

DESIGNATION

Charters included Charter rights not included

Generally more Fifth Freedoms, especially in US bilaterals

Limited Fifth Freedoms granted – more in US bilaterals

Increased number of points or open access

Only to points specified MARKET ACCESS

Double disapproval IATA tariffs often flouted (especially in Asia)

Double approval by both governments To be agreed using IATA procedures

TARIFFS

No frequency or capacity controls

Capacity agreed or shared 50:50 No capacity/frequency controls in liberals, but subject to review

CAPACITY

5.12 However most open skies do not permit :

• Traffic rights : No 7th freedom, No domestic cabotage.

• Nationality / Ownership : Still “substantial ownership and effective control” rule exists; some states do not allow over 25% of foreign ownership (e.g. US, Canada).

• Anti-competitive behaviour : No provision for dealing with this uniformly.

• Protectionist measures continue : State subsidies, Government traffic limited to national carriers (e.g. “Fly America” program); US does not permit US carriers to wet lease from non-US.

(Source: Rigas Doganis, ‘Flying Off Course: the Economics of International Airlines’, Third Edition, Routledge. 2002)


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INDIA’S INTERNATIONL AIR SERVICES POLICY

5.13 India has air service agreements with 97 countries of which only 46 (47%) are being

utilised. Exhibit 5.3 & 5.4 provide further details on these agreements. A comprehensive listing of active (in 2001) air service agreements by country is provided in Appendix IX.

EXHIBIT 5.3

INDIA’S BILATERALS

5.14 Of the 97 ASA’s, 51 are dormant and of the remaining 46, 44 are used by the foreign

countries, whereas AI & IAC only utilise 20 of these 46 ASA’s.

EXHIBIT 5.4 INDIA’S BILATERAL ACTIVITY

TotalAgreements

UnutilizedASA’s

ActiveASA’s

Foreign countryUtilization

AI/IACUtilization

97 51

4644

20

TotalAgreements

UnutilizedASA’s

ActiveASA’s

Foreign countryUtilization

AI/IACUtilization

97 51

4644

20


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Regulatory Constraints of India’s ASA’s

5.15 The consulting team was unable to gain access to copies of India’s ASA’s. A detailed analysis of the characteristics of these ASA’s is therefore not possible. The paragraphs that follow provide a broad overview on the predominant features of India’s ASA’s. This information is based on information gained from industry participants, published & private data sources and is supplemented by the teams knowledge of the market situation. Comprehensive data on the ASA’s that the team did access is considered to be of minimal relevance as it is predated (1999) and is thus not repeated in this report.

5.16 India’s current international air transport policy can be characterized by :

• Traffic Rights are controlled by the Government : India follows a dual designation policy, which designates Air India as the primary Indian carrier and thus the airline enjoys the first right of refusal for international operations to / from India. Indian Airlines has also been allocated traffic rights on international routes; however this is limited to Sri Lanka, CIS countries and the Gulf Air Owner States. As per India’s policy on international air services, private carriers are not designated for air traffic rights and hence cannot fly on international routes.

• Restriction on Frequencies and Capacity : Capacity is used as negotiating coin

and is still restricted in most of India’s ASA’s. The ASA’s generally specify restrictions on the frequency of flights that may be served on a given route. They also stipulate the seat capacity that a country’s carriers may operate each week and may also place restrictions on the aircraft equipment that may be flown.

• Restriction on Routes to be served : A route is determined by the points (cities)

served by an airline and therefore effectively represents the market of that airline. Typically, during negotiations, the governments of both countries mutually agree on the routes on which traffic will be carried. Designated carriers are allowed to fly only to these particular cities, or a choice of cities specified upon, under the ASA. Countries may agree on having more than one designated point of call to which traffic may be assigned, and large countries usually do. In negotiations, which are conducted on the basis of a very rigid reciprocity approach, larger countries tend to have greater bargaining power by virtue of the fact that they can offer more than one point of call to partners. India tends to take a conservative stance on such issues as seen by the answer to a parliamentary question by Shri. Sharad Yadav – the ex-Civil Aviation Minister.

“Offer of an airport as a new point of call to any foreign airlines is decided during bilateral air services consultations with the concerned country. These issues are decided on the principle of reciprocity and benefits accruing to both sides. Since Cochin is a commercially attractive point of call to foreign airlines and their respective countries do not have a similar commercially attractive additional point of call for the designated airline of India, it is balanced through a commercial agreement between the designated airlines of the country concerned and India. The exact nature of commercial arrangement varies from case to case and is worked out at airline level.” (Rajya Sabha Starred Question No. 408 08/2001).


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• Fifth Freedom Rights : Fifth Freedom rights are generally exercised by those

airlines that operate from another country into India and carry traffic that emanates from India to a third country. Allowing 5th Freedom to a foreign carrier out of India would compete with our national carrier and the carrier of the third country. For example, if Emirates were to fly to India and then on to Thailand, this would impact AI, IAC and Thai Airlines. However, the permission to fly to Thailand would remain with the Thai Government. Allowing flexibility to the foreign carrier therefore boils down to the stance India wishes to take vis-à-vis its national carriers. Fifth Freedom services are usually provided at lower fares recognizing the Fifth Freedom carrier’s ability to take advantage of marginal pricing – there is a real commercial incentive for those airlines to maintain these services.

• Codesharing : Refers to the ability of an airline to sell seats on a flight operated by

another airline. Provisions for codesharing are included in many of India's ASA’s. However, for an airline to codeshare, it must also have the underlying market access and capacity rights under the relevant ASA. Codeshare arrangements can also have a commercial bearing where the national carrier may impose ‘special’ terms.

• Double Approval Of Tariffs : A tariff is commonly defined as the price to be

charged for the carriage of passengers or cargo (excluding mail) and the general terms and condition of carriage. Countries regulate international tariffs for a variety of reasons, the main one being to promote the interests of their flag carriers while at the same time promoting the interests of consumers (i.e. by prohibiting predatory and abusive pricing strategies). However, in most cases comprehensive price regulation is difficult and extremely resource intensive. The several different types of approvals in the air tariff regime include:

a. Double approval, in which both states concerned must approve a tariff; b. Country of origin, in which only the state in which the transportation originates

need approve the tariff; and c. Double (or dual) disapproval, in which both states concerned must disapprove a

tariff to prevent it coming into effect.

In most cases, India follows the regime of “double approval” of tariffs, which entails that prices filed by the airlines may only come into effect if both countries’ regulatory authorities approve or single disapproval which is less restrictive since it does not require approval in writing.

• Royalty Payments : Where a foreign carrier seeks to obtain or enhance capacity to India but this is not matched with the national carriers desire (or ability) to fly to that country then ‘Royalties’ are charged, ostensibly in lieu of the profits that the national carrier may have made. This has pricing and therefore demand implications. Discussed in more detail in Section 7 on recommendations.


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• Ownership and Effective Control : Designated carriers are generally required to

be ‘substantially owned and effectively controlled’ by the government or nationals of the bilateral partner country so as to be able to utilise rights negotiated under the ASA’s. However, there is no internationally accepted classification of what constitutes ‘substantial ownership and effective control’. Most countries thus define parameters as per their interpretation and what constitutes as acceptable to them. ASA’s permit bilateral partners to refuse, revoke, suspend or impose conditions on the authorization of air services by carriers owned and controlled by other countries not party to the bilateral agreement. They prevent these carriers from using and benefiting from the rights established under those arrangements. They also restrict the ability for carriers from one country to provide services on behalf of another country.

• Most of India’s ASA’s specify “Substantial Ownership and Effective Control“ as a

precondition to commencement of services. However in some cases India also accepts Principal Place of Business as the designation criteria.

INDIA’S NEED FOR A CLEAR POLICY 5.17 India presently has a ‘draft’ Civil Aviation Policy dated April 2000. The new Civil

Aviation Minister - The Hon. Rajiv Pratap Rudy has taken some bold steps on airport privatisation and is in the process of finalising India’s Civil Aviation policy. It is hoped that this report will provide useful inputs to this process.

5.18 The pace of air transport liberalisation world-wide has increased in recent years. Many

countries recognizing the benefits of efficient, internationally competitive air services are now actively pursuing liberalised market access in their aviation agreements with partner nations. If India does not respond rapidly to the changing regulatory environment, she may be disadvantaged as air transport services and hence trade and tourism between other countries may become relatively more efficient and competitive.

5.19 The international air services regulatory system as practiced by India presently remains

a bottleneck in the overall development of the air transport network. In practical terms, the system has not served neither the interests of the consumer, nor that of the international airlines nor has it helped strengthen the operations of the Indian flag carriers.

5.20 It is imperative that the government in consultation with all industry stakeholders

develop a regulatory framework / policy for the sector which enunciates a clear long-term strategy for its development, including the potential role of the private sector in financing, managing, or owning air transport assets. Without this it will be difficult to attract investment in civil aviation, for new air transport providers, or for infrastructure.

5.21 An international air policy is required to serve the needs of a wide spectrum of Indian

stakeholders, including air carriers, airports, travellers, and the trade and tourism sectors. For instance, it would be of benefit to the AAI to have the government grant foreign carriers broad access to Indian cities. However, from the view point of the Indian flag carriers it would be more beneficial if the Government were to limit foreign carrier access to India in order to prevent revenue diversion.


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5.22 Hence our policy should provide guidelines or criteria to establish an appropriate

balance for resolving such conflicting interests and clarify how a balance between the interests of all stakeholders may be achieved. The current approach does not take into account market conditions or make provisions for rapid changes. In particular, designated ports, the principal of reciprocity and negligible incremental increases all constrain market changes. The protocols and processes involved in ASA’s are not market responsive.

5.23 An important aspect to consider in the context of this study is the consulting team’s

claims of inadequate seat capacity on key routes. In the exhibit that follows, it may be inferred that provision of seat capacity at an aggregate level is broadly adequate and that there exists a substantial bank of available seat capacity for Indian and foreign carriers compared with the amount of actual passenger traffic carried. However, it needs to be pointed out that this capacity figure is an aggregate figure and does not indicate the amount of capacity granted / utilized by Indian and foreign carriers on specific routes.

EXHIBIT 5.5 INDIA’S BILATERAL CAPACITY & TRAFFIC

Financial Capacity Granted Operated Traffic Load Year (Mn seats) seats (%) (Mn pax) Inbound Outbound Factor

1995 26.9 49.9% 9.2 2.1 3.1 68.7%1996 28.0 52.2% 10.1 2.3 3.5 69.4%1997 30.9 47.6% 10.8 2.4 3.7 73.2%1998 31.8 49.2% 10.9 2.4 3.8 69.7%1999 32.7 48.0% 11.6 2.5 3.9 73.7%2000 35.6 45.0% 12.3 2.6 4.0 76.8%2001 37.5 49.1% 12.2 2.5 4.1 66.4%

CAGR (95/01) 5.7% 5.4% 4.8% 3.0% 4.9%Load Factor 71.1%

Source: DGCA

Tourists

5.24 From Exhibit 5.5 above, we can see that load factor over 7 years – 1995 / 2002 has

averaged at approximately 71%. This figure in itself while reasonably high, does not take into account traffic flows on key city pairs or the seasonal variations of demand. It would hence be appropriate to state that this percentage would be substantially higher for key source markets, were these factors taken into account.

UTILIZATION OF CAPACITY ENTITLEMENTS BY FOREIGN CARRIERS 5.25 The Indian air services market is characterized by demand on a limited number of city

pairs which comprise a high percentage of overall traffic. As mentioned in an earlier section approximately 75% of inbound and 82% of outbound traffic flows occur on 20 key routes. Exhibit 5.6 that follows provides details on capacity entitlements granted and utilized for major source / destination markets.


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EXHIBIT 5.6

ENTITLEMENTS GRANTED & USED BY SELECTED KEY COUNTRIES

S. No. Country Desinated Airlines Entitlement (Seats Per Week) Utilization

1 U. K. (a) British Airways 17 frequencies 100% (17 frequencies)(b) Virgin Atlantic 2 Services (Against Unutilised Entitlement 100% (2 frequencies)

of Air India )

2 USA (a) Delta Airlines No Restriction on Capacity Entitlement 7 frequencies / 1,365 seats(b) Northwest No Restriction on Capacity Entitlement 7 frequencies / 2,821 seats

3 France Air France 7 frequencies to Delhi and 6 to Mumbai 77% (10 frequencies)

4 Germany Lufthansa 16 frequencies * 144% (23 frequencies)

5 Holland KLM 7 Frequencies to Delhi with one Freq. 100% (7 frequencies)Coterminating at Kolkata

6 UAE (Dubai) Emirates 10,400 Seats / week 99% (10, 315 seats)

7 Jordan Royal Jordanian 1,800 Seats / week 78% (1,400 seats)

8 Saudi Arabia Saudia 8,500 Seats / Week 100% (8,485 seats)

9 Oman Oman Air 3, 700 Seats / Week (+2% Adjustment) 100% (3,750 seats)

10 Kuwait Kuwait Airways 5,200 Seats / Week 95% (4,945 seats)

11 South Africa South Africa Airways 900 Seats / Week 79% (712 seats)

12 Sri Lanka Sri Lankan 6,570 Seats / Week 100% (6,563 seats)

13 Thailand Thai Airways** 4,100 Seats / Week 99% (4,071 seats)

15 Malaysia Malaysia Airlines 6,300 Seats / Week 83% (5,228 seats)

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Source: DGCA, CRISIL/ M&A compilation Note:

* Lufthansa is allowed to operate more flights than that negotiated in the ASA’s; however for each additional Frequency Unilaterally Operated by Lufthansa, the airline has to pay Air India USD 685,000 Per Annum.

** Thai Airways has recently been granted an additional seat capacity of approximately 5,500 seats / week to Chennai, Bangalore, Varanasi, Gaya & Guwahati.

5.26 As may be inferred from the exhibit above, other than the U.S., utilization of seat

capacity entitlements for many of our major and upcoming markets exceeds 75% with Jordan on the lower end at 78% and Germany, Sri Lanka, Saudi, Oman & Holland utilizing 100% of granted capacity entitlements. Thailand, has however been recently allowed an additional 5,800 seats / week. The present levels of capacity entitlements by country appear inadequate given the current and anticipated levels of demand for seat capacity on routes to key source & destination.


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5.27 India needs to streamline its policy on allocation of seat capacity. For example, India

has signed ASA’s with 13 countries, which were constituents of the Former Soviet Union. Current entitlements with the CIS countries are 2.5 million seats per annum for both sides combined. The number of tourists who visited India from the CIS countries during the year 2001 was 24,831. Arguments made in the past by the Ministry of Civil Aviation that capacities granted far exceed present levels of demand need to be seen in this light.

5.28 We would wish to stress that when we refer to the above example we are not

necessarily implying that seat capacity granted on other routes currently not utilized / under-utilized, implies a waste or misallocation of capacity entitlements. On the contrary, it allows the designated carriers of both countries the freedom to respond quickly to a supply gap in the market and also encourages growth on routes. However it should be taken into consideration that trade and tourism are vehicles for significant economic growth and foreign income earning, thus it is of paramount importance that the needs of these sectors be met and adequate capacity be granted to countries which form our major markets.

5.29 In an effort to increase capacity entitlements, the Civil Aviation authorities, in the past &

current year to date have held ASA discussions with 14 countries. Details are provided in Exhibit 5.7 that follows.

EXHIBIT 5.7

COUNTRIES IN ASA DISCUSSIONS

Year Country

Yr 2002 IranJordanAfghanistanItalySri LankaQatarUKSingapore

Yr 2003 (to date) Republic of KoreaMalaysiaTurkeyItalyThailandGulf Air owner States (UAE, Omanand Bahrain)

Source – CRISIL / M&A Survey

5.30 Also recognizing the severe dearth of air seats during peak tourist season, in

September 2002, the government announced an “open sky policy” allowing operation of extra flights by airlines outside the bilateral entitlements, from 1st December 2002 to 31st March 2003, subject to commercial agreement with Air India. This to some degree did help alleviate demand as foreign carriers were able to mount extra flights on high traffic routes.


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EXHIBIT 5.8

Winter 2002 - Scheduled AI / IA deployed additional 4,461 seats compared to 2001Foreign carriers deployed 773 additional seatsIn total 5,234 additional seats were deployed as compared to 2001

Open Sky Policy Foreign carriers deployed an additional 20,215 seatsAirlines which availed of "open skies"Lufthansa Frankfurt - BombayVirgin Atlantic London - DelhiOthers Singapore Airlines

Malayasia AirlinesEmiratesSri Lankan AirlinesSouth African Airways

WINTER 2002 OPEN SKY POLICY DETAILS

5.31 However, many industry stakeholders contacted by CRISIL / M&A while appreciative of

the government’s responsiveness to initiate change, were of the opinion that there were still gaps which need to be addressed with the “open skies policy”. They were particularly keen to make the following points :

• Interviewees were of the opinion that by announcing the policy at the 11th hour, Indian policy makers did not give the airlines sufficient lead-time to plan appropriately. Most airlines plan their schedules well in advance thus making it difficult for them to respond to such a scheme at a short notice period. According to officials of a major European airline it normally takes a minimum of six weeks from permission being given to get an aircraft & crew in place to operate an additional flight.

• Industry players also mentioned that a vast majority of leisure travellers plan their vacations months in advance and generally buy “holiday packages” via airline owned retail travel centers or travel distributors who sell tickets and package it with other holiday products (hotel stay, guided tours etc). Announcing the policy at a time, when peak season had already commenced resulted in airlines / tour operators not having enough time to sell India as a destination to these leisure travellers and ensure sufficient traffic flows on inbound flights.

• Under open skies it was mandatory to enter into ”commercial arrangements” with AI, many stakeholders believed that mounting extra flights was not a commercially attractive option.

5.32 Excerpts of opinions of industry stakeholders from the Express Travel & Tourism article

(Space Jam – The Case For Open Skies, Issue dated 01 - 15 January, 2003) have been provided below.

• Rajeev Kohli, Marketing Director, Creative Travel - “This policy when announced was already very late. Hence, no airline has brought or is bringing any flight in addition to their scheduled operation. Austrian Airlines, we definitely know, is running in minus from November ’02 till February ’03. However, they have no plans to get charter flights because on one hand, time given to act was too short and on the other, they are all afraid that any policy in India can be reversed very soon on one pretext or the other.”


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• Nabil Sultan, Emirates General Manager - India & Nepal - ”It puts tremendous financial pressure on any airline to pull out aircraft from one route & deploy it to another, and after that if part of the revenue goes to Air India, why should one go for it.?”

• Praveen Chugh, Chairman, TAFI - North India - “The insistence to have a

commercial agreement with Air India is acting as an impediment to the introduction of additional flights as it would make such operations more expensive. The government in this scenario should not insist for commercial agreements.”

• Akbar Al Bakar, CEO, Qatar Airways - “India’s current bilateral system not only

stifles the growth of efficient airlines, but hurts passenger interest and adversely affects economy. With deregulation in Qatar, we witnessed large traffic inflow and immediate employment benefits.”

CHARTER SERVICES 5.33 Non-scheduled services are air services, which are not listed, in published airline

timetables. The regulation of non-scheduled services is excluded from the bilateral framework, which covers scheduled passenger and freight services only. Charter flights are one form of non-scheduled services. Charter services are operated on an infrequent basis; in some cases these may be one off or ad hoc flights, while others may involve an extended program of flights often on a seasonal basis.

5.34 The air charter business operates in a highly competitive & price-sensitive market place. Air charter services offer lower prices to passengers by operating with very slim profit margins. Accordingly, charter flights are frequently scheduled to be part of "track programs," flight schedules designed to ensure that airplanes spend as little time as possible on the ground and carry passengers on both the departing and returning legs of the trip.

5.35 Charter services in Europe and across the Atlantic account for a significant portion of the overall market for leisure travel. They have developed partly as a response to market circumstances, such as the high seasonality of passenger traffic, and partly as a response to some regulatory constraints on scheduled services, including the high fares. They have also enabled carriers to develop new markets, particularly to places not served by scheduled international services.

5.36 The authorization of charter services remains at the discretion of individual countries. Proposed charter services must satisfy the regulatory requirements of both countries involved as a pre-requisite to commencement of operations. The regulatory policies and approach to charter services vary among countries. Whilst many countries, particularly tourist destinations, readily authorize incoming charter flights, others have adopted a more restrictive approach.


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INBOUND CHARTER SERVICES

5.37 In India, the DGCA is responsible for approving the operation of charter services. India has recently liberalized its air transport policy relating to international inbound tourist charter operations. Operators can operate any number of international tourist charter flights by any type of aircraft to the designated international airports. A tourist charter flight can transport the tourists on domestic sectors also within India. The initial place of arrival and the final place of departure from India, however, have to be a designated international airport.

5.38 Foreign aircraft operators can market the charters through their computer reservation

system and direct sales through the Internet. Since free movement of cargo is permitted under open sky policy, carriage of cargo is also permitted on tourist charter flights. The operators can operate charter flights on a regular basis like scheduled flights, and the slots are also cleared well in advance. A number of participants acknowledged that these changes had alleviated many of the constraints on the operation of charter services to and from India.

5.39 Even though policy on inbound charters is suitably relaxed operators do face practical

problems with Airports, slots and delays in obtaining permissions. These impediments need to be addressed.

OUTBOUND CHARTER SERVICES 5.40 There is a very strong case for liberalising the Aviation Industry by permitting non-

scheduled charter operators for overseas destinations. Currently, inbound charters are permitted but outbound charters policy does not allow more than 6 flights in 90 days (unless the aircraft operated have 9 or less seats). Given the high fixed costs of the aviation business, this condition makes outbound charters unviable.

5.41 Liberalising outbound Charter Policy will lead to following benefits :

(a) Outbound Charter operations may alleviate capacity constraints: Foreign airlines may and do frequently resort to cutting capacity into / out of India to suit their individual circumstances. This often creates capacity constraints along with higher air fares leading to hardship for Indian travellers and inbound tourists The situation can get quite extreme if such capacity cuts are undertaken during the peak outbound travel season. Allowing charter operators, will provide much needed capacity. Charters will lead to freeing-up of certain capacity that can be used by business travellers and foreign tourists while stimulating lower airfares.

(b) Multiplier effect on Indian Economy : Tourism industry is one of the largest

employers in the world. Furthermore, according to WTO studies every direct employment in tourism industry creates 6 - 8 indirect employment in dependent industries. Charter operation will provide the industry with the much-needed boost and help us create a stronger economy.


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(c) Foreign Exchange Savings for the Country : All airfares collected by various

international airlines is remitted back to their countries retaining only a part of the fares for day to day operations. For example it is possible that British Airways remits back to UK a sum of Rs.46,000/- equivalent to US$ 1,000/- per passenger whereas the charter operator would remit minimal lease rentals of Rs.4,800 equivalent to US$ 100/- per passenger seat. The rest of the funds would be used and retained in India. At macro level this could result in enormous foreign exchange savings for the country.

(d) Promote Incoming Tourism : If the charters policy was modified to allow a mix

of Indian and foreign tourists, an Indian aviation company could then enter this segment and operate low-cost charter services year round. Additionally such services would will allow for connectivity to new or developing markets for that might not be large enough to sustain scheduled services. This will facilitate incoming tourism across the year. Further, charter services of an Indian company is less likely to be impacted by recurrent negative publicity that the western media generates, for example, plague in Gujarat, riots, cross-border disputes, etc.

(e) Costs Savings to Indian Travellers : The airfare charged by charter flights are

invariably less than half of the airfare that schedule carriers charge, resulting in huge savings to the consumer.

(f) Put Indian Traveller On Par with Global Customers : It is unfair that a British

citizen can travel to India for a 7 day holiday at an all inclusive package cost of Rs.22,500/- equivalent to GBP 300 - when an Indian traveller cannot even avail of just the cost of the air ticket at that price.

(g) Non-Compete with Air India & Scheduled Airlines : The permission could be

provided so as to allow only Package Tour travellers through Charters. This will ensure that charter operators do not compete with Air India and Indian Airlines. In fact, a liberal outbound charter policy will result in increased business for domestic airlines including Indian Airlines on hub-spoke basis i.e. domestic airlines will carry the travellers from other cities to international gateways.

(h) Generate Revenue for the Government: Besides, direct and indirect tax

contributions, charters will generate revenue via payments in the form of landing fee, navigation fee, maintenance and ground handling contract with Air India.

(i) Cargo Capacity: Exports from India on incoming charters can generate

economic activity by creating low cost cargo capacity.

Impact of Civil Aviation Policies on Tourism In India ( 65 ) Economics of Airlines & The Case for Air India

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THE AIRLINE INDUSTRY 6.1 This section details the context in which “commercial arrangements” by the flag carriers

should be considered. This section briefly outlines the global aviation environment with respect to airline industry, the impact of changing market conditions, and the possible implications of such “commercial arrangements” on the profitability of airlines flying into India.

6.2 The aviation industry has faced and continues to face a period of unprecedented turmoil

and mounting pressure for restructuring and consolidation so as to maintain profitability. Due to the capital intensive and fragmented nature of the industry, operating an airline has traditionally been a high cost / low margin enterprise. This has resulted in extreme vulnerability of the industry to sudden cost shocks or crisis leading to reduced demand for services.

6.3 The economic slow down world wide combined with other calamities including war,

terrorism and the SARS epidemic and resultant travel advisories has left a number of airlines in a vulnerable position. Steep decline in yields due to the decrease of corporate sector travel and increased price sensitivity of the corporate and leisure sectors, combined with generally increasing unit costs, has resulted in low profitability for the industry.

EXHIBIT 6.1

6. ECONOMICS OF AIRLINES & THE CASE FOR AIR INDIA


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6.4 The events of 11 September 2001, which resulted in the US Government providing US$

billions in loans and grants to the US airline industry only exacerbated already existing issues on the long-term profitability of the industry. The European airline industry has experienced similar pressures. Sabena, Swissair, United Airlines and US Airways have gone into bankruptcy or ceased operations entirely due to accelerated deterioration in their financial situation. British Airways, Alitalia, SAS and KLM have also suffered large losses. In South-East Asia, Malaysia Airlines has recently also been re-capitalized by the Malaysian government. Many airlines have reacted to contain losses by reducing frequency, capacity and staff. Non-profitable routes have been reduced or eliminated altogether.

6.5 In 2001, member airlines of the International Air Transport Association (IATA) recorded

a collective loss of some US$ 18 billion. As per IATA estimates, it is also expected that global airlines may lose in the net result, probably US$ 6.5 billion in 2003.

EXHIBIT 6.2

FINANCIAL RESULTS OF IATA AIRLINES SCHEDULED INTERNATIONAL SERVICES

(US$ Billions)

-15

-10

-5

0

5

10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

-15

-10

-5

0

5

10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Source: IATA

6.6 Every airline has a “break-even load factor” which is the percentage of the seats the

airline has in service that it must sell at a given price level, to cover its costs. Airlines typically operate very close to their break-even load factor. Since revenue and costs vary from one airline to another, so does the break-even load factor. Escalating costs push up the break-even load factor, while increasing prices have just the opposite effect, pushing it lower. The sale of just one or two more seats on each flight can mean the difference between profit and loss for an airline. IATA statistics comparing load factors and revenue with break-even levels over the period from 1991 to 2001 are provided in Exhibit 6.3 overleaf.


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EXHIBIT 6.3

INTERNATIONAL OPERATING ECONOMICS

Load factors and passenger profitability 1991-2001

-4000

-3000

-2000

-1000

0

1000

2000

3000

400019

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

$m

0

10

20

30

40

50

60

70

80

%

Passenger operating profitLoad factorBreak even load factor

Load factors and passenger profitability 1991-2001

-4000

-3000

-2000

-1000

0

1000

2000

3000

400019

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

$m

0

10

20

30

40

50

60

70

80

%

Passenger operating profitLoad factorBreak even load factor

Source: IATA 6.7 The volatility in demand for air transport services is a vital issue for airlines. The break-

even load factor for European airlines on the Far East Australasia route (includes India) was 74.5% in 2001. Airlines are therefore very sensitive to costs and extraneous charges (such as royalties) which would discourage capacity that might otherwise be considered viable.

6.8 Future growth of air transport services will continue to depend primarily on world

economic and trade growth, airline costs, as well on the extent to which the industry can resolve issues such as infrastructure requirements (airports), airspace congestion and increasing capital investment needs. The air transport industry will also be affected by government decisions and policies, notably those determining the type and extent of economic regulation of airlines.

6.9 Given the current environment and reduced demand for services, for the airlines to

maintain a level of sustainable profitability, the airlines must focus on radically reducing costs and achieving other efficiencies. In this light, prohibitive royalty payments / block space arrangements with Air India might prove a serious deterrent for airlines looking to fly / expand capacity in the Indian market. In the course of this study, the consulting team was informed that royalty payments generally range from US$ 5 to US$ 50 per seat.


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6.10 “Block space arrangements” are agreements whereby Air India obtains a specified

number of seats from the operating carrier at an agreed cost / or no cost. The revenues derived from such arrangements accrue wholly to Air India. These block space arrangements present Air India with the ability to hold out services to various markets without committing its own physical resources

6.11 The Indian carriers, Air-India (A-I) and Indian Airlines (IAC) are unable to utilise a large

portion of their capacity entitlements (their utilisation stands at 38.7 per cent). The main reason for poor utilisation of the entitlements by the Indian carriers is their limited fleet size and the inability to add more aircraft.

6.12 Details of Block Space arrangements gleaned from secondary sources are provided in

Exhibit 6.4. A listing of airlines with whom Air India has block seat arrangements (but not specifying the number of seats) as at 2001 is provided in Appendix X.

EXHIBIT 6.4

AIR INDIA’S BLOCK SPACE ARRANGEMENTS (YR 2001)

Airlines Sector Seats / Week(in each directon)

Kuwait Airways Kuwait / Chennai / Kuwait 140

Virgin Atlantic London / Delhi / London 130

Emirates Dubai / Chennai / Dubai 172

Malaysian Airlines* Mumbai / Hyd'bad / Bangalore / Kuala Lumpur 350

Thai Airways** Bangkok / Bombay / Bangkok 200

Aeroflot Moscow / Delhi / Moscow 75

Total 1,067

Prior Arrangements 1,128

Total 2,195

Source : Parliamentary Report - 2001, CRISIL / M & A survey

Note : As on 31st March 2000, Air India had an entitlement of 1,128 seats in each direction, with various airlines through Code Share / Block Space Arrangements.

* Figures have been updated by the consulting team to reflect current arrangements.

** Was to be finalised at that point in time 6.13 Based on primary and secondary data sources, the income earned by Air India from

Block Space, Royalty Arrangements and Revenue from Unutilized Bilaterals (Virgin) grew from Rs.1,625 million in 1999 to Rs.2,404 million in 2001 and Rs.4,000 million in FY 2002. This represents a CARG of 35% per annum.


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THE CASE FOR AIR INDIA

6.14 As proud Indians we would like nothing more than for our Flag Carrier to be strong and vibrant airline continually seeking to expand and grow at the pace required to fuel tourism, economic growth and GDP growth.

6.15 Unfortunately Air India has not been in a position to capitalize on the ‘rights’ it has, and protectionist policies, consciously or unconsciously, have hindered growth in traffic. A pragmatic approach to rectification of these problems needs to be addressed (see Section 7 on Recommendations).

6.16 It is not within the scope of this report to diagnose the ailments of our national carrier but realisation of the constraints imposed, largely attributable to the Flag Carrier, are of relevance and have therefore been elaborated upon in this report.

6.17 For the majority of destinations that have emerged in the last ten years, the airline has been a key feature of their success. Flag carriers’ financial interests are largely based on traffic into and out of a destination. This means a strong alignment of the airline financial interest and the national tourism interest, thus creating the basic conditions for strong common interest and alignment in strategy

6.18 Maintaining dedicated flag carriers with strong international networks which are sustainable in the global markets and dedicated to advancing the nation’s tourism and export industries is in India’s key interests. Were Air India a strong airline it would have been able to : • Promote India as a destination and as hub into the Asian / South-East Asian Region • Invest in national tourism marketing campaigns and sell holiday packages and not

just air seats • Promote regional destinations in line with the tourism strategy • Create a strong brand image for India consistent with tourism objectives

6.19 Thailand’s Flag Carrier is a good example of growth led by passenger seat capacity

where growth in seat capacity by Thai Airways has been matched by significant increases in passenger arrivals. Details for Thailand / Thai Airways compared with India / Air India are provided in Exhibit 6.5 below.

EXHIBIT 6.5

THAILAND

2.22.22.32.32.42.42.52.52.62.62.7

1996 1997 1998 1999 2000

Years

Scal

e - A

rriv

als

(Mn)

1616161617171717171818

Scale - ASK's (Mn)

Arrivals (Mn.) ASKs (Mn.)

-1.02.03.04.05.06.07.08.09.0

10.0

1996 1997 1998 1999 2000

Years

Scal

e - A

rriva

ls (M

n)

-

10

20

30

40

50

60

Scale - ASK's (Mn)

Arrivals (Mn) ASKs (Mn)

INDIA

AI has been unable to match capacity with demand growth

Thai Airways has historically provided capacity ahead of demand growth


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6.20 Privatization with respect to airlines is a term that is often loosely applied. It tends to be more of a process than a quantifiable objective or result. The process is one of divestment, by various methods, of government-owned or -controlled equity and may be carried out in a phased manner over time. Some governments may consider a minor sale of shares as “privatization”. Subject to this use of the term, the privatization of State-owned airlines has been one of the pre-eminent transformations in international air transport, where airlines in all but a handful of States had been government owned until recent times.

6.21 The motives for privatization have been highly diverse, ranging from purely economic

considerations, to improving operating efficiency and competitiveness, to a more pragmatic desire to reduce the heavy financial burden on governments for financing capital investment in new equipment. Whatever the reasons, the privatization of airlines has accompanied a more commercially oriented outlook within an increasingly competitive environment. Since 1985, about 130 governments announced privatization plans or expressed their intentions of privatization for approximately 180 State-owned airlines. During this period, 86 of these targeted carriers have achieved their privatization goals.

6.22 It should be noted, however, that achievement of privatization has not been easy. Many

of the initial privatization plans had to be deferred or postponed because of the complexities encountered in the process or the economic condition of the airlines concerned, or local circumstances. But in most such cases the intention to privatize remains. The uncertainties surrounding the privatization process are also illustrated by a small counter trend of renewal, usually as a temporary measure, of government ownership as a national interest response to the potential demise of a national airline.

EXHIBIT 6.6


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AIRPORTS – A CASE FOR PRIVATISATION

6.23 Increase in seat capacity alone will not be effective unless basic aviation infrastructure is

improved. Airports at our gateway locations – Mumbai and Delhi need considerable upgradation and expansion. The Airports Authority of India (AAI) is a profitable Government owned enterprise that has significant cash reserves but expenditure has been hampered by poor decision making. Privatisation has been proposed by the Minister of Civil Aviation which will positively improve efficiency as has been the trend world wide. A list of recent and planned airport privatisations is provided in Appendix XI.

6.24 Based on discussions with the AAI, they have plans for expansion and up-gradation of

Mumbai and Delhi, however even the present imbalance in capacity between the flag carriers and other airlines operating from these airports is apparent. Details provided in Exhibit 6.7 below.

EXHIBIT 6.7 AIRPORT CAPACITY & THROUGHPUT – MUMBAI & DELHI

Terminal 2-A 2-B 2-C 1-A 1-B Total(others) (AI) (IAC) (others)

Capacity 2.5 2.5 3.0 3.0 4.0 15.0 Passengers handled 3.0 Under Ren. 2.5 2.5 4.1 12.1

Imbalance (0.5) 0.5 0.5 (0.1) 2.9

Terminal 1-A 1-B Total(IAC) (others)

Capacity 4.7 2.7 1.3 8.6 Passengers handled 3.8 1.2 1.4 6.5

Imbalance 0.8 - 1.5 (0.1) 2.2

Source : M&A Survey, June 2003

INTERNATIONAL AIRPORT DOMESTICDELHI

INTERNATIONAL AIRPORT DOMESTICMUMBAI


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‘MODEL’ ON RELAXATION OF BLOCKSHARE / ROYALTY ARRANGEMENTS

6.25 A financial model has been created taking one European airline as an example to illustrate the impact that liberalisation would achieve. This model is based on reduction in ‘block share’ arrangements. The principal would be the same for airlines where ‘royalties’ are paid to the flag carrier. Using the figures provided in this model and making a few broad assumptions the ‘block share’ arrangement illustrated here would be the equivalent of approximately US$ 70 per round trip or US$ 35 per seat in each direction.

6.23 This model relates to a European airline that was, till recent times, operating three

frequencies per week to London using an aircraft with a capacity of 386 seats. Of this capacity Air India was entitled to 64 seats per aircraft in each direction that was, according to a Parliamentary question, expected to yield a net income to the flag carrier of Rs.13.8 crores per annum. Using these figures a model has been created which then assumes that this airline is granted seven daily flights per week (as they desire) and the block space arrangement is decreased to 50% of its present level. The resultant impact in terms of incremental seats to the country and the effects on Air India and the tourism industry, are enumerated in the exhibits provided below.

EXHIBIT 6.8

‘EUROPEAN AIRLINE’ MODEL ON LIBERALISATION OF BLOCKSHARE ARRANGEMENTS

Explanation Unit Number

A European Airline presently uses AI's bilateral rights and operates 3 Jumbos (386 pax) per week between Delhi & London - Number of seats used by AI is 64 per flight (therefore = 64x3x52)

Round trips Per Annum 9,984

Earning per return ticket from the Block allocations based on estimated AI income of Rs. 13.8 crores is Rs. 13,822

To arrive at net selling price assume a load factor of say 75% Rs. 18,429 (this price is reasonable as commissions etc. will be additional.)

AI's allocation as a proportion of the Airlines capacity is 64/386 AI Proportion 16.8%

The benefit to the European Airline on seat capacity basis from the present level would be % benefit to Aitline 8.4%

Assume the European Airline passed on 50% of this benefit to the consumer % benefit to consumer 4.2%

Assume a price elasticity of Demand at -1.4 (Note 1) Traffic Increase % 5.9%

If Civil Aviation were to decrease the allocation to 32 seats per flight (half present levels) and increase the flights to 7 per week then the present level of earnings (Rs.3.8 crores) would increase to Rs. 24.2 crores

Note 1 : Price elasticity of demand is assumed at – 1.4. There are no studies on the Indian Tourism industry that may be used however, based on studies done for OECD countries, the average price elasticity of demand works out to 1.75 whereas in a similar study conducted for New Zealand, the average works out to 1.2. For the purpose of this model, an average – 1.4 has been assumed. It may also be noted that price elasticity for inbound leisure (which we need more of) is significantly greater than for business visitors. The assumption used is simple an average of the two segments and is therefore considered conservative.


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EXHIBIT 6.9 ‘EUROPEAN AIRLINE’ MODEL ON

LIBERALISATION OF BLOCKSHARE ARRANGEMENTS (Cont’d)


The Europeans Airlines present overall capacity per annum (386x3x52) Round trips per Annum 60,216

If the Airline were to be given 7 flights a week (the most operationally viable formula for airlines on routes where there is sufficient load) then the present capacity would increase to

Round trips per Annum 140,504

Incremental Capacity Round trips per Annum 80,288

Incremental pax assuming a reduced load factor of 70% Round trips per Annum 56,202

Incremental load based on price elasticity (for the new capacity) Round trips per Annum 3,312

Incremental load based on price elasticity (for the original capacity) Round trips per Annum 2,484

Total Incremental Passengers 61,998

Assume 50% Inbound pax (Note 2) Incremental Pax 30,999

Average Spend per Visit (Note 3) US$ $1,300

Incremental spend in India US$ Mill $40Rs. Crores 189.4

Fiscal Impact assuming 15% taxes paid in India (Note 4) Rs. Crores 28.4

Note 2 : As the model is for the purposes of determining incremental passenger traffic to India, it is likely that the in-bound out-bound imbalance will be redressed and that such incremental seat capacity will result in a higher proportion of in-bound traffic. This is further supported by the argument that out-bound traffic presently does find a way to travel. It is therefore been assumed that in-bound traffic will be 50% of the total incremental traffic. Note 3 : The average spend per visitor has been assumed at US$ 1,300 per visitor which is a historical average that has been computed by tourism authorities. Note 4 : Physical impact is the impact of direct taxes on various services, goods & commodities purchased by visitors in the country, this would include hotels, F&B, transportation, etc. It has been assumed that the direct physical impact would be 15%, that would be divided between the States and Central Government and is, if anything, conservative. The cumulative impact of taxes to tourists to our country is significantly greater.

6.26 On the basis of the above, granting the desired additional seat capacity to this European

airliner could yield 1.75 times the present level of income to Air India and at the same time result in substantially greater impact to the Indian tourism industry (Rs.190 crores), of which direct fiscal impacts to the Government would be in the region of Rs. 28 crores.


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6.27 If one were to apply the same model to a cross section of airlines that are known to be seeking incremental seat capacity, that have been covered under the survey conducted, see Exhibit 6.10 below, a total in excess of 26,000 seats per week are required by these airlines alone and translates to 1.36 million seats per annum. This is based on airlines met in the course of this study, details presented in Exhibit 6.11. Total incremental demand is likely to be significantly greater. It is realized that such additional capacity cannot be added overnight but is feasible over a 1 to 3 year period.

EXHIBIT 6.10 AIRLINES SEEKING TO INCREASE SEAT CAPACITY

Airline Present Additional Seats TotalFlights Flights per flight Seats

Wantedper week per week per week

British Airways 18 22 358 7,876 Malaysian Airlines 19 24 280 6,720 Singapore Airlines 35 5 243 1,215 Virgin Atlantic 3 11 386 4,246 Austrian Airways 5 5 257 1,285 Gulf Air 43 27 182 4,914 Total 123 94 279 26,256

Round Trips per annum 1,365,312 Round Trips per annum -- say 1,000,000

6.28 Even if the desired seat capacity were to be assumed at 1 million round trips per annum,

the overall impact calculated in a similar manner as has been done for the European airline model, would result in an incremental spend in India of close to Rs.3,800 crores, based on 620,000 additional visitors to the country that such capacity could generate taking into account price elasticity.

EXHIBIT 6.11

EFFECT OF INCREASINGS SEAT CAPACITY ON TOURISM


Present Capacity (Non AI / IAC) 8,500,000

Incremental Capacity Round trips per Annum 1,000,000 Incremental pax assuming a reduced load factor of 70% Round trips per Annum 700,000

Incremental load based on price elasticity (for the new capacity) Round trips per Annum 41,256

Incremental load based on price elasticity (for the original capacity) Round trips per Annum 500,972

Total Incremental Pax 1,242,228

Assume 50% Inbound pax (Note 3) Incremental Pax 621,114

Average Spend per Visit (Note 4) US$ 1,300

Incremental spend in India US$ Millions 807 Rs. Crores 3,795

Fiscal Impact assuming 15% taxes paid in India (Note 5) Rs. Crores 569


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CIVIL AVIATION Vs TOURISM - EFFECT ON THE INDIAN ECONOMY 6.29 Using a ‘model’ of an incremental 1 million visitors to the country, a comparative

evaluation has been made of the investments and returns that would be generated by the flag carrier V/s the benefits to the tourism industry. If Air India were to be a vibrant thriving airline and be capable of providing 50% of this incremental capacity so as to fully utilise its bilaterals, it would need to purchase and operate additional aircraft. However the airline has lost market share steadily over the years from 32.8% in 1980 to 19.4% level in 2002 (IAC has an additional 10% share).

6.30 Permitting additional seat capacity on the major traffic generating sectors would have a

significant beneficial impact on the industry. In order to numerically justify this hypothesis, a “model” has been created and is presented overleaf.

6.31 From this model it is apparent that the benefits of additional seat capacity, whether

provided by Air India or any other international carriers, would have a significant more beneficial impact on the Tourism industry, than it would on Civil Aviation. This would apply even if Air India were to be one of the world’s stronger airlines. In the current situation it strengthens the argument for allowing substantial increase in capacity with or without Air India’s participation. A three year liberalization window, till Air India can get its act together, would be appropriate.

6.32 The model constructed is based on an illustration where an increase of 1 million visitors

(which includes business & leisure visitors) per annum is sought, for which suitable airline seat capacity and hotel and attendant tourism facilities need to be provided. The key assumptions used in constructing this model and the model itself, are provided below. The model compares the investment and benefits that accrue to the Tourism Industry and to the National Carrier in order to cater to an incremental 1 million visitors.

6.33 The model numerically determines the capital investment required in the tourism and

aviation industries, the total revenue (net of imports) that each of these sectors will generate on an annual basis and employment creation both by tourism and civil aviation. Comparison of these factors substantiate the need to develop tourism even if it is at the cost of Air India and Indian Airlines.

6.34 A summarisation of the conclusions arrived at in the model constructed are as follows :

1. Capital Expenditure - In order to achieve a incremental level of 1 million visitors per year, the Tourism Industry will need to make an investment of approximately Rs. 6,000 crores in hotel & related facilities for the construction of a further 30,000 rooms needed to cater to these additional visitors; whereas the airline would need, (assuming that Air India would like to retain close to a 50% share of this traffic) an amount of over Rs. 11,000 crores for purchase of aircrafts.


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2. It should also be noted that the capital expenditure by the hotel & tourism industry would have a import component that would be as low as 5% to 10%, whereas capital expenditure required for the creation of additional airline capacity, either by way of purchase or lease, would almost entirely flow to the benefit of Airbus Industries in Europe or Boeing in Seattle.

3. Revenue Earning - FX Revenue earnings of the tourism industry and Air India

has been calculated in the model, based on fairly conservative assumptions, it may reasonably be assumed that an additional 1 million visitors would generate a total revenue (excluding imports required to earn such revenues) of over Rs.5,000 crores, whereas the airline, to service 50% of this business, would earn just under Rs. 2,000 crores (net of imports).

4. The model presented does not go to the level of “Net” profit as it addresses FX

Revenue which forms an important part of India’s GNP. However, even if one were to assume a healthy and financially viable Air India, its net profits based on a gross FX revenue of Rs.3,500 crores and revenue, net of imports leakage, of Rs. 2,000 crores would be in the region of Rs. 200 crore (applying profitability ratios to sales of the better managed airlines) pale into insignificance in relation to profits generated by the creation of 30,000 additional hotel rooms and its attendant spin offs to the tourism industry.

5. A further point to note is that the tourism industry is an important contributor to

the Exchequer by way of Expenditure Tax, Income Tax (Central), Luxury Tax, Sales Tax & Entertainment Tax (State), whereas Air India is subject to Income Tax when it makes a profit.

6. Employment - In the model constructed, based on fairly conservative estimates,

an additional 1 million visitors would create over 150,000 jobs in the tourism industry and 6,300 jobs in Air India.

6.35 Based on the arguments provided in this report it is hoped that the interests of one

public sector company, Air India, will not be placed ahead of an entire Tourism Industry. Despite the constraints, this industry generates over Rs.12,000 crores in foreign exchange, employs (both directly and indirectly) 24 million people and the Travel & Tourism economy accounts for 4.8% of GDP (under Satellite Accounting).


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EXHIBIT 6.12 THE MODEL

NoteBed Nights

Additional Tourists 1,000,000 VisitorsAverage length of stay 1 10 NightsBed Nights per annum 10,000,000 Bed Nights

Room Capacity

Average annual Occupancy 65%Guests per room 2 1.4Annual bed nights available per room 332

Additional Rooms Required 30,107

Average cost per room 3 0.20 Rs. Crores

Investment required 6,021 Rs. Crores

EMPLOYMENT GENERATED BY THESE HOTEL ROOMS

Direct Employment (2 persons per room) 4 60,214 Persons

Indirect employment (3 persons per room) 4 90,321 Persons

Total Employment generated 150,534 Persons

HOTEL ROOMS REQUIRED FOR ADDITIONAL 1 MILLION TOURISTS

Note 1 The average length of stay has been assumed at 10 nights. There are no detailed studies that have been conducted in this regard, however based on our experience in this industry sector, average length of stay for Resort locations, like Goa are 12 nights per annum, for the Golden Triangle – 8 nights per annum and for the southern circuits – 7 nights per annum. Government statistics put the average length of stay at 21 days. However, with the pre-ponderance of business visitors and visitors from neighbouring countries who do not form part of the target market an average length of stay of 10 nights has been assumed.

Note 2 The number of guests per room at resort locations is, as expected, as high as 1.9 persons per room, however for city locations and business visitors, the average is in the region of 1.1 per room. Erring on the side of caution we have made an assumption of 1.4 guests per room.

Note 3 The average cost per room has been assumed at Rs. 20 lakhs, this takes into account land, construction, fit out and pre-opening expenses. Actual averages range from Rs. 70 lakhs per room for a 5 star deluxe property in Mumbai, to as little as Rs. 12 lakhs per room for smaller budget hotels in secondary locations. Since budget hotels are now a primary focus, an average of Rs. 20 lakhs per room is considered appropriate.

Note 4 In this model we have assumed that direct employment will be provided in the ratio of 2 persons per room and indirect employment to the tourism industry will be a further 3 persons per room. The direct employment ratio is in line with present industry norms within the country. However, based on studies carried out in the past, estimates of indirect employment by the tourism industry range from 3 to 5 persons per room.


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EXHIBIT 6.13

THE MODEL (Continued)

Annual round trips per aircraftAverage distance from markets 8,000 kmAverage round trip time 17 HoursAnnual aircraft utilisation 4,500 HoursAnnual round trips per aircraft 265 Round Trips

Aircraft Carrying Capacity

Seats per aircraft 5 400 Seats / A'craftAverage load factor 6 65% LoadPassengers per aircraft 260 Pax / A'craftProportion of Foreign Visitors 7 50% Proportion

Aircraft Reqired 29.06 say 29 Aircraft

Investment per aircraft 5 805 Rs. Crores

Total investment or lease capital value 23,345 Rs. CroresAssuming Air India retains just under 50% of Capacity 11,270 Rs. Crores

14 747's

EMPLOYMENT GENERATED BY THESE AIRCRAFT

Air india average per aircraft 720 Persons

World average per aircraft (including outsourcing) 250 Persons

Average assumed for the purpose of this model 450 Persons

Total Employment generated 6,300 Persons

AIRCRAFT REQUIRED FOR ADDITIONAL 1 MILLION TOURISTS

Note 5 Aircraft acquisition has been assumed by way of lease or purchase of 747 aircraft with an average seat capacity of approximately 400 passengers. Such aircraft are presently said to be valued in the region of US$ 150 million (Rs. 805 crores). Note 6 Average load factors for popular traffic routes range from 75% to 95%, however with a substantial increase in airline capacity, as assumed by this model, it is reasonable to assume that load factors will drop - a conservative 65%.has been assumed. Note 7 At present based on total international traffic handled at all Indian airports, the ratio of foreign visitors is 37% with 63% of arrivals and departures being made up of Indian passengers. With this increase in capacity it has been assumed that this ratio will alter to 50% foreign visitors and 50% Indian travelers for the incremental capacity. If the present ratio were to be retained, the model would lean even more favorably towards tourism at the cost of airlines expansion.


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EXHIBIT 6.14

THE MODEL Continued

Visitor SpendingNumber of additional visitors 1,000,000 VisitorsSpend per visit (Presently $1,300) 8 1,300 US$Import Leakage 9 10% Proportion

FX Earnings 1,170 US$ MillionsFX Earnings 5,382 Rs. Crores

Air India RevenueNumber of additional visitors 500,000 VisitorsAverage Km per pax 16,000 Km per paxAverage Rate per Km 10 0.10 US$Import Leakage 9 45% Proportion

FX Earnings 440 US$ MillionsFX Earnings 2,024 Rs. Crores

Ratio of Tourism FX Revenue Vs. Airline FX Revenue 2.66

Summarised Costs & BenefitsTourism Air Industry India

Capital Expenditure 6,021 11,270 Rs. CroresFX Revenue Net of Imports per annum 5,382 2,024 Rs. CroresRatio of annual FX Revenue to Capital 89% 18% Ratio

Employment 150,534 6,300 Persons

EARNINGS FROM TOURISM & AVIATION FROM ADDITIONAL 1 MILLION VISITORS

Note 8 The present expenditure per visitor is in the region of US$ 1,300 per visit. Here again assuming higher volumes, lower expenditures per visit of $ 1,100 have been assumed. Note 9 Import Leakage - In measuring the benefit to the economy it is necessary to deduct the cost of imports. Based on studies conducted worldwide and taking into account that India is a large relatively developed country and not an island economy like the Maldives, Mauritius or Seychelles, it is estimated that no more than 10% of visitors spending is in relation to imported items. In the case of airlines the proportion of import leakage is considerably higher by way of loan repayments, purchase of spare parts and foreign exchange expenditure that needs to be incurred. Estimates range from 40% to 50% on a worldwide basis we have assumed an import leakage factor of 45%. Note 10 The average rate per passenger kilometer has been assumed at $ 0.10 per passenger kilometer. The fares between Mumbai and some of the major source markets have been compiled and this average comes to r11.28 per passenger kilometer for the lowest excursion fares. The average including business and first class fares (even though smaller volumes) would be higher. However, the passenger kilometer rates compiled which would lower the average considerably. The international norm of r10 per passenger kilometer is therefore appropriate.

Impact of Civil Aviation Policies on Tourism In India ( 80 ) The Case for Liberalisation & Recommendations

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“As a long haul destination, the only convenient mode of transport to India is by air. Choke up the skies and you choke up India itself to tourism, to trade and to a host of other economic activity. Too often policy makers in the Ministry of Civil Aviation have bowed to the dictates of the national carriers, that lower seat availability means higher tariffs chargeable. For the short term commercial gains of a national carrier the country has been held ransom and there are either insufficient or no connections to most tourism generating destinations. As a result, India ranks 67th among the top tourism destinations in the world.” (Graham Wason, Vice President, Strategy & Development, World Travel & Tourism Council commented on India’s international civil aviation policy (WTO/OMC Tourism Symposium, 22nd / 23rd February 2001).

7.1 An over-riding motivation of the history of regulation of air services in India has been the desire to ensure the protection of the national flag carriers. The government’s aviation policies have been based more on the concern of protection of the interests of national airlines rather than the interests of the overall economy or the consumers. This approach has not served the interests of the economy or the consumer nor has it helped our flag carriers; as a matter of fact some of the current problems faced by the national carriers may be attributed to India’s overtly protectionist policy.

7.2 In the light of limitations and shortcomings of a restrictive bilateral system compounded

by the rapid growth of the Indian economy, there is a growing recognition of the limits of the current bilateral framework as practiced presently and the need to launch initiatives toward genuine liberalization of air services.

7.3 In India GDP growth in the period from 1996 to 2001 (the post Hindu rate of growth

period) has been on average 6.28% whereas the annual compounded increase in inbound and outbound international traffic has been 4.8% and 2.4% for domestic traffic. India is now on a ‘roll’ with a visibly strengthening economy and expectations of significantly higher rates of GDP growth. It is imperative that this not be constrained by insufficient international seat capacity to and from the country. This is the main thrust of this report.

7.4 The examples of the telecom, media / TV, and auto industries - where India has taken

bold steps and leapfrogged political, technology and economic barriers to arrive on the world stage - needs to be repeated in the Civil Aviation arena. As has been elaborated in this report, there is an inextricable link between passenger traffic movement and economic growth, which must be encouraged.

7. THE CASE FOR LIBERALISATION &

RECOMMENDATIONS


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7.5 The challenge that India faces is to be able to reconcile a number of potentially

conflicting objectives such as ensuring the participation of Indian carriers in air transport while simultaneously ensuring that economic growth, trade and tourism to India do not suffer. Thus, in considering liberalization India needs to decide on two basic issues: • The extent and pace of liberalization, • The approach (course of action) to be pursued.

7.6 In considering the issues that have been raised in this report, the following criteria were

taken into account for the recommendations being made : ♦ Current and future needs of the Indian economy; including the trade & tourism

sectors. ♦ The requirements of the foreign and Indian carriers. ♦ Current and future needs of Indian consumers. ♦ Pricing issues.

7.7 The consulting team has arrived at recommendations on the suggested future action. In

evaluating the policy options that may be considered, we have taken into account the views of those we interviewed, analysis of data made available to us by primary and other relevant sources supplemented by the team’s knowledge of the market and regulatory environment. As stated in the introduction of this study, this study seeks to identify gaps in the current approach by policy makers to the civil aviation sector. It does not seek to address detailed points of implementation.

7.8 The team recommends that this policy be followed for an interim period of 3 years so as

to introduce a transitional capacity building period into bilateral agreements. This would be a safeguard to mitigate the wide disparity in the level of air transport development between India and some partner nations. It would allow us to achieve the twin objectives of liberalisation while at the same time gaining time for strengthening our flag carriers for them to be able to effectively compete in the global markets. The measures to alleviate the constraints are all proposed within the existing framework. While these can be lifted in the short term, the long term goal should be a more thorough review of processes to align the system with trade and tourism growth goals.

7.9 Recommendations made and brief explanations on each of these are provided in the

pages that follow.

BILATERALS & SEAT CAPACITY

India should continue to follow the ‘Bilateral’ system and seek to maximize benefits from partner nations. The attempt should be for an equal exchange of rights. However, if India is not in a position to use such rights they should not play ‘dog in the manger’. Such rights may be stockpiled for future use or ‘commercial’ terms agreed upon (see below). Important source and destination markets need to be focused upon.


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7.10 Liberalization of access on a global basis, which would include unrestricted granting of

beyond 3rd and 4th freedom traffic rights to trade partners, is not recommended. For the present, the consulting team believes that the bilateral approach to air service negotiations is a flexible and viable means to effect liberalization as it allows India to retain control over the pace and direction of air traffic rights. At a later date, having monitored the overall effect of liberal air service policies and its effect on competition and the economy, India may consider to pursue regional, pluri-lateral and multi-lateral arrangements, as deemed appropriate.

7.11 Another consideration for adopting this stance would be that if India were to grant liberal

access to foreign country carriers without receiving in exchange equal traffic rights for the Indian national carriers, India will have no negotiating leverage that might otherwise be used to secure additional rights in the future. India’s stance with countries not willing to advance equal exchange of rights should be to maintain maximum leverage to achieve procompetitive objectives.

7.12 The consulting team does not recommend a standard approach to bilateral negotiations

with partner nations. Adopting a standard approach without differentiating between the larger and less significant source markets is ideal; however, it may not always be possible or in India’s best interests. It is in India’s interest to be more liberal with the more important source and destination markets. Where Air India is not capable or does not wish to utilise reciprocal rights, it charges ‘Royalties’ (on a per seat basis or per additional flight basis) or obtains ‘Block Space’ (specified number of seats per flight). – Such commercial arrangements are common amongst lesser developed countries but it is strongly recommended that demands by the Flag Carrier be reduced, if not eliminated. This would encourage growth in capacity and result in lower prices to the consumer. (See Model)

7.13 Royalties charged by Air India to selected foreign carriers (especially those where Air

India / Indian Airlines do not wish to use capacity that would otherwise be available to them) range from $5 to $50 per seat and block share arrangements range from 15 to 65 seats per flight. In the case of a European airline – used as an example in the ‘model’ presented in Section 6, the block space amounts to 16.8% of total capacity. The financial model provided in Section 6 quantifies the benefits that could accrue if Air India were to halve the block space taken and increase this airlines’ frequency from 2 to 7 frequencies per week. It goes on further to quantify the effect of relaxing capacity constraints to the extent of 1 million seats in each direction.

7.14 As has been explained in this report operating margins in the industry are thin and

Airline operators met have stated that such charges act as serious deterrents to growth in capacity.


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7.15 Attempting to standardise commercial arrangements across airlines and routes is not considered feasible as political, geographical, commercial and physical parameters will vary. One mechanism that may be employed with designated carriers of our, say ten, key source markets is to establish preferential royalties / commercial arrangements with maximum limits being set where the flag carrier does not wish to or cannot use reciprocal rights.. It is suggested that concerned stakeholders including the Ministry of Tourism & Culture mutually prioritise top source markets for “special consideration” in conjunction with the Ministry of Civil Aviation. The consulting team recommends that this prioritised list include the following source markets - U.K., France, Germany, Holland, Italy, Canada, Korea, Singapore, Spain, and Japan.

The ‘Open Skies’ Winter relaxation in capacity is a useful interim measure in addressing seasonal variations. However, this needs to be notified at least 6 months before commencement of peak season for a specified number of years – say 3 years.

7.16 Airline operators plan schedules well in advance and find it difficult to mobilize aircraft at short notice; in addition they need to market their seats well in advance with their travel trade partners. Allowing a 3 year window would encourage long term planning. Commercial arrangements for these additional frequencies need to follow the recommendation made above.

7.17 The late decision-making by Indian Authorities was a common refrain, voiced by airline

operators and other industry stakeholders. Foreign Airlines operating in India need to be permitted greater Operational Flexibility.

7.18 It is recommended that ASA’s with key source markets allow capacities that the operator is free to work within. The airline may therefore use full capacity with a larger aircraft in season and not be penalised or have to obtain clearance for using smaller aircraft in the slack periods.

Capacity needs to be enhanced ahead of demand – let the foreign airlines sell India.

7.19 Increasing air access facilitates an increase in tourist arrivals and trade expansion, as has been the experience of many countries which have liberalised civil aviation policies. Details have been provided in Section 2 of this report. The Indian civil aviation sector needs to be driven through a policy shift. There is therefore a need to adopt a more demand led approach.

7.20 There needs to be a commitment by the Government to expand market access

opportunities by negotiating capacity ‘ahead of demand’. Thus even if seat capacity with our key markets capacity, may currently be adequate, the potential for rapid increases in tourism & business demand will require further substantial increases in capacity ahead of demand. In addition, monitoring of capacity should be done on a ‘route’ or ‘regional’ basis with a bias towards India’s important source and destination markets, and not only in terms of aggregate capacity to the country.


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7.21 We recommend that the ASA’s contain a trigger mechanism to enable capacity to be

increased automatically if load factors are above an agreed threshold level. Both countries should also mutually decide on the incremental capacity increase on a given city pair either in terms of number of flights or seats. For example on any given city pair, it may be decided that the minimum capacity that may be allowed is the actual traffic carried during the previous corresponding season (grossed up at say a 75% load factor). This could be determined on the basis of mandatory filings required to be made with the DGCA by all airlines operating air services in the country.

7.22 It should be borne in mind that for this mechanism to be employed effectively it is

imperative that the increase in capacity, if any, be granted by the Indian authorities for a reasonable duration of time and granted well before the season so as to allow the airline operators sufficient lead time to plan efficiently.

7.23 A point for consideration would be that foreign airlines, when they allocate resources to

a particular route, have a vested interest in marketing India as a destination so as to ensure that they fill the seats. Harnessing this potential by allowing more capacity is undoubtedly to India’s benefit. International airlines operating to India are willing to assist India by capacity constraint in the short term and by an equitable division of capacity and traffic in the longer term. At the same time, they are willing to take on the burdens of prompting tourism to India and servicing the outbound market to high demand destinations. Tariff flexibility with safeguards.

7.24 The consulting team suggests that in the case of tariffs, the Indian Government take an approach which allows for relatively permissive tariff provisions with its bilateral partners. We recommend that the tariff regime followed by India be the "single disapproval" arrangement. The rationale behind this is that, should an airline due to its dominant position, propose a tariff deemed to be uncompetitive (extremely low or excessively high), the DGCA should be able to intervene to stop the fare from being implemented. Use of this convention is of course dependant on the partner nation agreement. The “double disapproval” convention is the most liberal but does not have the necessary safeguards that are desirable from the Indian point of view. When foreign airlines reduce capacity under Code Shares / Route Restructuring – then let another airline take up the slack.

7.25 With the recent turmoil in the civil aviation industry, airlines have had to restructure routes and operating arrangements in order to survive the drop in passenger traffic. In such rationalization, routes of lesser priority to a foreign airline may include an important route for India. For example Swiss International Airline intends to suspend its 6 flights a week to Delhi this coming winter. It is not known as to the whether by coincidence or intent, Alitalia and Thai have both recently been granted daily frequencies from Delhi, this decision is lauded.


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7.26 Capacity reduction could also be effected by alliances and code share agreements. For

example when KLM and North-West entered into a code share, North-West suspended 7 frequencies per week to Delhi. In such situations India must seek to reinstate capacity by offering it to other carriers servicing the same markets / regions. Regional hub characteristics can be enhanced by selective granting of 5th Freedom Rights – Air India could also benefit.

7.27 It has been cited by some stakeholders we have met in the course of this study, about India's reluctance to grant ‘beyond’ rights to foreign carriers. We recommend liberal granting of 5th freedom rights as long as the foreign government is prepared to grant India the same. Not granting 5th freedom rights may result in the loss of potential economic benefits from additional tourism opportunities.

7.28 There are certain sectors / routes where, for economic reasons, neither the Indian

national carrier nor the foreign national carrier are servicing. The consulting team thus recommends granting of unrestricted 5th freedom rights on such routes where there are no 3rd or 4th freedom operators. If desired the Indian government could set a time limit (say two years) for such rights. This would allow the government to re-evaluate the scenario at a future date and re-allow only if, at that point in time, the national carriers are not interested in plying the sector.

7.29 Granting of 5th freedom rights to foreign airlines operating through India would promote

‘hubbing’ in the country as it will provide the international traveler greater connectivity. The Out-bound market have been favored over the In-bound markets – the balance needs to be redressed.

7.30 The Gulf and South East Asia have been the greatest beneficiaries of additional seat capacity granted to and from India in recent years. These markets cater to a large extent to the more substantial out-bound Indian OFW and leisure markets. This is a need that needs to be met but not at the cost of the in-bound markets that would have a substantial positive impact on the Indian economy. Reduce cost of operations to bring down prices – ATF / Taxes – let the Consumer benefit.

7.31 As has been shown in this report fares to India (on a per-seat-kilometer basis) are amongst the highest in the region. Reduction in ATF prices, which account for a large chunk of an airline’s operating costs, would serve to reduce prices and stimulate demand. A comparison of ATF prices paid by Air India in different parts of the world and disparity in the tax structure are illustrated in Appendices XII and XIII.

7.32 There has been controversy in the past on foreign carriers paying Sales Tax on ATF

purchased in India. This has now been removed but this benefit has not been passed on to the national carriers for overseas routes. This needs to be done to level the playing field.


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Foreign Airlines operating in India need to be permitted greater Administrative Flexibility.

7.33 Airline officials met have complained of the ‘red tape’ involved in dealings with the authorities. An example was given of an operator having to physically remove seats from the aircraft flown so as to comply with capacity restrictions placed.

If Air-India / Indian Airlines cannot utilize entitlements – let other Indian carriers do so.

7.34 The consulting team is aware and fully supportive of the need for a national flag carrier. Air India, in the recent past has taken small steps towards building a stronger airline and continues to do so. For Air India to regain its past glory it needs large doses of capital and improvement in operational efficiency. Till such time as this comes to pass (most likely with privatisation) there is an argument to allow other designated Indian carriers to utilise bilateral rights for economic periods of time on a selective basis. The market is large and growing. Growth and competition are desirable market factors in the future. (Please see comments on privatisation that follow later in this section). CHARTERS

Outbound Charters – will save the country money and relieve pressure on capacity. Can also be linked to Inbound.

7.35 High fluctuations in demand on key routes put airlines under pressure not to put capacity, which is then under-utilised most of the year, thus putting pressure in peak months. Facilitation of outbound charter services can provide opportunities for the development of low cost leisure and major event markets. Allowing outbound Indian charter operations would help alleviate peak season demand and also impact the economy in a positive way through benefits as explained earlier in this report.

7.36 There are Indian charter operators who are seeking such capacity and are also willing to provide a ‘quid pro quo’ in the form of committing incremental inbound charter volume. “Commercial arrangements” and royalties could also be entered into with charter operators as done with the foreign carriers.

7.37 Indian charter operators would employ people in India, pay Indian taxes, save foreign exchange and provide the Indian outbound leisure tourist / consumer with lower prices. AIRPORTS / GROUND HANDLING

Encourage the newer International Airports – but also take into account gateway locations such as Mumbai & Delhi.

7.38 Government’s proven intent to promote the newer international airports / regions is commendable and needs to be encouraged. Using the ‘Bilaterals’ to encourage traffic to these locations is desirable. However, satisfying demand and encouraging growth to the main gateway cities, Mumbai & Delhi, is of equal, if not greater importance. These gateways handle a greater proportion of inbound traffic. (Exhibit 3.13 in Section 3 provides details on capacity lost in Mumbai and Delhi post 9/11).


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Terminal capacity imbalance at Mumbai and Delhi favors the Flag Carriers, as it should, but the imbalance is now reaching a point where Airlines are complaining vociferously. This needs to be addressed.

7.39 Terminal capacity throughput figures indicate that AI & IAC terminal facilities are under- utilized and other carriers over-utilised (See Section 6). This imbalance needs to be addressed. Our Gateway Airports need expansion and modernization. The AAI has the funds, Our Civil Aviation Minister has made bold moves to re-initiate privatization – This needs to be done.

7.40 Airlines met in the course of this study have complained bitterly about the Airports and arrangements. Where Air India is the ground handling agent they have access to finer terminal facilities but have to put up with mediocre service standards. Where they use other terminals facilities are poor. This has been said especially of Mumbai. PRIVATISATION / AIR INDIA Privatise Air-India and give them preferential treatment for a pre-defined transition period.

7.41 It is not within the scope of this study to evaluate the feasibility of or comment on the methodology to be followed in privatisation of our Flag Carriers. However, the future of these airlines has a definite bearing on ‘Bilaterals’. A substantial part of the price that a buyer would pay is likely to be attributable to the ‘rights’ conferred upon the airline. Its value would diminish substantially if these were to be impaired. Any investor would therefore seek to protect these rights. It therefore follows that a equitable system be devised by granting rights of first refusal, etc.

7.42 If Air India is to be privatised, this will need to be done in a phased manner that does not

allow the constraints to air traffic growth to continue at the cost of the economy.

Impact of Civil Aviation Policies on Tourism In India ( 88 ) Appendices

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APPENDICES


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APPENDIX I

CORRELATION BETWEEN WORLD GDP, RPK’s & ASK’s

Year RPK/GDP ASK/GDPGDP RPK ASK Factor Factor

1972 5.0 12.7 8.7 2.5 1.7 1973 6.4 12.1 8.3 1.9 1.3 1974 2.2 1.0 0.8 0.4 0.4 1975 1.5 4.8 4.7 3.2 3.1 1976 4.9 8.4 6.3 1.7 1.3 1977 4.2 8.6 5.6 2.0 1.3 1978 4.5 12.9 7.1 2.9 1.6 1979 3.7 9.0 7.6 2.4 2.0 1980 2.4 1.3 6.0 0.5 2.5 1981 2.0 1.9 1.6 0.9 0.8 1982 0.6 3.6 3.5 6.1 5.8 1983 3.2 4.5 3.4 1.4 1.1 1984 4.8 7.6 6.7 1.6 1.4 1985 3.5 8.2 6.8 2.3 1.9 1986 3.3 5.9 7.0 1.8 2.1 1987 3.7 11.6 7.5 3.1 2.0 1988 4.4 6.7 6.3 1.5 1.4 1989 3.7 3.2 3.1 0.9 0.8 1990 2.7 11.5 11.8 4.2 4.4 1991 0.8 (3.0) (1.4) (3.7) (1.7) 1992 1.1 9.3 8.0 8.5 7.3 1993 1.2 4.2 4.9 3.5 4.0 1994 3.1 8.6 7.0 2.8 2.3 1995 2.8 8.1 7.4 2.9 2.6 1996 3.3 8.6 6.3 2.6 1.9 1997 3.5 5.1 4.1 1.5 1.2 1998 2.3 3.2 3.0 1.4 1.3 1999 3.0 6.4 5.6 2.1 1.9 2000 4.0 8.0 5.0 2.0 1.3

Average 3.2 6.7 5.6 2.2 2.0

Source: IMF / IATA

Change %


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APPENDIX II

LOAD FACTORS ON ALL CITY PAIRS REPORTED BY ICAO CY 2000

CarrierInbound Outbound Inbound Outbound Inbound Outbound

SIA Chennai Singapore 136,550 136,550 120,835 125,998 88.5% 92.3%Indian Airlines Chennai Singapore 90,356 90,356 61,942 71,525 68.6% 79.2%Air India Chennai Singapore 89,646 78,792 78,242 64,736 87.3% 82.2%Total 316,552 305,698 261,019 262,259 82.5% 85.8%British Airways Delhi London 144,778 144,429 118,827 123,465 82.1% 85.5%Air India Delhi London 88,740 91,208 71,109 76,768 80.1% 84.2%Virgin Atlantic Delhi London 19,310 19,310 13,381 11,032 69.3% 57.1%Thai Airways Delhi London 405 366 90.4%Total 252,828 255,352 203,317 211,631 80.4% 82.9%British Airways Mumbai London 139,989 138,460 104,778 115,878 74.8% 83.7%Air India Mumbai London 138,330 136,590 108,717 110,171 78.6% 80.7%Total 278,319 275,050 213,495 226,049 76.7% 82.2%Air India Mumbai Dubai 89,349 67,068 56,909 50,090 63.7% 74.7%Cathay Pacific Mumbai Dubai 77,070 77,070 54,425 56,578 70.6% 73.4%Bangladesh Biman Mumbai Dubai 28,673 28,673 20,521 21,781 71.6% 76.0%Thai Airways Mumbai Dubai 317 188 59.3%Total 195,409 172,811 132,043 128,449 67.6% 74.3%Srilankan Airlines Chennai Colombo 94,703 94,235 79,009 76,184 83.4% 80.8%Indian Airlines Chennai Colombo 87,146 87,001 64,795 61,974 74.4% 71.2%Total 181,849 181,236 143,804 138,158 79.1% 76.2%Lufthansa Mumbai Frankfurt 102,258 101,869 77,689 83,049 76.0% 81.5%Delta Mumbai Frankfurt 69,381 68,771 52,404 60,635 75.5% 88.2%Total 171,639 170,640 130,093 143,684 75.8% 84.2%Kuwait Airways Mumbai Kuwait 95,842 95,610 74,503 72,388 77.7% 75.7%Air India Mumbai Kuwait 53,480 62,057 35,967 44,726 67.3% 72.1%Total 149,322 157,667 110,470 117,114 74.0% 74.3%Thai Airways Delhi Bangkok 99,841 99,048 81,753 88,234 81.9% 89.1%Air India Delhi Bangkok 32,225 31,697 26,237 26,868 81.4% 84.8%Indian Airlines Delhi Bangkok 10,875 10,875 6,151 7,691 56.6% 70.7%Air France Delhi Bangkok 100 98 98.0%Swissair Delhi Bangkok 241 218 90.5%SAS Delhi Bangkok 188 172 91.5%Total 143,370 141,720 114,531 122,891 79.9% 86.7%Air France Delhi Paris 84,319 83,953 66,070 70,952 78.4% 84.5%Air India Delhi Paris 55,191 54,019 41,173 38,760 74.6% 71.8%Total 139,510 137,972 107,243 109,712 76.9% 79.5%Lufthansa Delhi Frankfurt 137,902 138,291 104,073 112,474 75.5% 81.3%Delta Delhi Frankfurt 190 97 51.1%Total 138,092 138,291 104,170 112,474 75.4% 81.3%Bangladesh Biman Kolkata Dhaka 84,970 84,970 59,014 62,994 69.5% 74.1%Indian Airlines Kolkata Dhaka 33,930 33,785 20,051 19,935 59.1% 59.0%British Airways Kolkata Dhaka 7,122 7,670 1,974 2,630 27.7% 34.3%Total 126,022 126,425 81,039 85,559 64.3% 67.7%

Pax Seat Capacity Pax Revenue Traffic Load FactorCity Pair


M&A

APPENDIX II - (Contd.)



Air India Mumbai Riyadh 115,215 115,215 81,955 93,393 71.1% 81.1%SIA Delhi Singapore 102,148 102,148 86,867 90,533 85.0% 88.6%Air India Delhi Singapore 20,703 21,105 16,882 16,272 81.5% 77.1%Total 122,851 123,253 103,749 106,805 84.5% 86.7%SIA Mumbai Singapore 121,154 120,822 103,956 107,687 85.8% 89.1%Air India Mumbai Singapore 603 41 6.8%Swissair Mumbai Singapore 241 214 Total 121,998 120,822 104,211 107,687 85.2% 89.1%Malaysian Airlines Chennai Kuala Lumpur 82,508 97,604 66,034 89,038 80.0% 91.2%Indian Airlines Chennai Kuala Lumpur 30,305 30,305 24,138 25,347 79.7% 83.6%Air India Chennai Kuala Lumpur 4,824 26,331 3,677 24,457 76.2% 92.9%Total 117,637 154,240 93,849 138,842 79.8% 90.0%Thai Airways Kolkata Bangkok 50,045 49,740 40,114 40,680 80.2% 81.8%Indian Airlines Kolkata Bangkok 62,196 62,007 36,307 37,473 58.4% 60.4%Lufthansa Kolkata Bangkok 390 352 90.3%Air India Kolkata Bangkok 4,101 3,516 3,360 3,206 81.9% 91.2%Thai Airways Kolkata Bangkok / Utapao 305 253 83.0%Total 116,732 115,568 80,133 81,612 68.6% 70.6%British Airways Delhi Dhaka 86,110 87,313 34,228 27,295 39.7% 31.3%Bangladesh Biman Delhi Dhaka 28,496 28,496 18,807 16,725 66.0% 58.7%Total 114,606 115,809 53,035 44,020 46.3% 38.0%Oman Air Mumbai Muscat 56,070 56,070 44,117 44,553 78.7% 79.5%Air India Mumbai Muscat 43,989 50,266 19,163 27,849 43.6% 55.4%Total 100,059 106,336 63,280 72,402 63.2% 68.1%Uzbekistan Airways Delhi Tashkent 96,573 85,723 36,257 37,258 37.5% 43.5%Swissair Mumbai Zurich 83,185 83,419 62,595 70,492 75.2% 84.5%Cathay Pacific Mumbai Bangkok 78,171 78,171 69,589 69,677 89.0% 89.1%Korean Air Mumbai Bangkok 3,174 3,301 2,004 1,764 63.1% 53.4%Thai Airways Mumbai Bangkok 317 188 59.3%Total 81,345 81,789 71,593 71,629 88.0% 87.6%PIA Mumbai Karachi 64,391 64,306 47,382 50,034 73.6% 77.8%Indian Airlines Mumbai Karachi 15,080 15,080 9,432 9,449 62.5% 62.7%Total 79,723 79,386 57,027 59,483 71.5% 74.9%Swissair Delhi Zurich 70,820 71,061 56,977 57,957 80.5% 81.6%Air India Dubai Delhi 67,480 44,665 47,759 36,843 70.8% 82.5%Northwest Delhi Dubai 271 266 98.2%Total 67,480 44,936 47,759 37,109 70.8% 82.6%Kuwait Airways Delhi Kuwait 57,356 57,356 45,301 43,419 79.0% 75.7%Air India Delhi Kuwait 9,849 10,452 4,590 8,250 46.6% 78.9%Total 67,205 67,808 49,891 51,669 74.2% 76.2%Northwest Mumbai Amsterdam 66,237 65,123 55,517 57,384 83.8% 88.1%British Airways Mumbai Amsterdam 401 383 95.5%Total 66,237 65,524 55,517 57,767 83.8% 88.2%Indian Airlines Calicut Sharjah 65,865 63,137 43,046 36,032 65.4% 57.1%Air France Mumbai Paris 63,252 63,004 48,153 53,706 76.1% 85.2%Air India Mumbai Paris 410 328 80.0%Total 63,662 63,004 48,481 53,706 76.2% 85.2%



M&A




Indian Airlines Cochin Sharjah 62,271 63,179 52,012 53,522 83.5% 84.7%Lufthansa Chennai Frankfurt 61,054 61,054 47,796 53,280 78.3% 87.3%Oman Air Trivandrum Muscat 47,451 47,451 40,117 38,021 84.5% 80.1%Air India Trivandrum Muscat 10,282 9,648 6,515 6,565 63.4% 68.0%Total 57,733 57,099 46,632 44,586 80.8% 78.1%Air India Delhi Tokyo 31,463 32,576 19,210 22,804 61.1% 70.0%JAL Delhi Tokyo 25,698 25,802 17,609 17,165 68.5% 66.5%Total 57,161 58,378 36,819 39,969 64.4% 68.5%Air India Mumbai Damman 56,110 57,044 31,015 33,951 55.3% 59.5%Air India Bangalore Singapore 31,155 20,904 25,127 17,701 80.7% 84.7%Indian Airlines Bangalore Singapore 23,200 22,765 15,777 17,097 68.0% 75.1%Total 54,355 43,669 40,904 34,798 75.3% 79.7%Northwest Delhi Amsterdam 54,003 52,909 42,830 43,395 79.3% 82.0%Srilankan Airlines Trivandrum Colombo 38,668 48,543 31,727 33,691 82.0% 69.4%Indian Airlines Trivandrum Colombo 15,080 15,080 11,967 11,546 79.4% 76.6%Total 53,748 63,623 43,694 45,237 81.3% 71.1%Indian Airlines Delhi Kathmandu 52,080 52,824 37,543 34,603 72.1% 65.5%Air India Delhi Hong Kong 51,255 51,858 42,405 45,076 82.7% 86.9%Air France Delhi Hong Kong 100 81 81.0%Total 51,355 51,858 42,486 45,076 82.7% 86.9%Indian Airlines Calicut Doha 51,185 51,765 29,146 29,013 56.9% 56.0%Indian Airlines Trivandrum Male 49,518 49,518 34,226 36,440 69.1% 73.6%Air India Mumbai Abu Dhabi 45,780 47,472 33,835 31,401 73.9% 66.1%SAS Delhi Copenhagen 44,473 44,951 34,576 33,021 77.7% 73.5%SAS Delhi Helsinki 188 172 91.5%Total 44,473 45,139 34,576 33,193 77.7% 73.5%Oman Air Chennai Muscat 43,830 33,885 25,820 17,884 58.9% 52.8%Air India Chennai Muscat 293 131 44.7%Total 43,830 34,178 25,820 18,015 58.9% 52.7%British Airways Chennai London 42,361 41,960 34,177 34,700 80.7% 82.7%SIA Mumbai Manchester 40,530 40,530 27,461 30,140 67.8% 74.4%British Airways Mumbai Manchester 376 372 98.9%Total 40,530 40,906 27,461 30,512 67.8% 74.6%Kuwait Airways Trivandrum Kuwait 40,109 40,109 30,604 31,387 76.3% 78.3%Air India Trivandrum Kuwait 201 63 31.3%Total 40,310 40,109 30,667 31,387 76.1% 78.3%Air India Mumbai Doha 36,556 34,311 16,372 17,773 44.8% 51.8%Air India Trivandrum Dubai 32,479 36,982 23,477 30,213 72.3% 81.7%Air India Cochin Dubai 32,012 25,944 27,322 22,454 85.3% 86.5%PIA Delhi Karachi 31,650 31,606 27,463 28,118 86.8% 89.0%Air India Chennai Dubai 30,751 50,933 18,192 33,348 59.2% 65.5%SIA Kolkata Singapore 29,493 29,493 23,067 25,148 78.2% 85.3%British Airways Kolkata Singapore 409 338 82.6%Total 29,493 29,902 23,067 25,486 78.2% 85.2%



M&A




Srilankan Airlines Delhi Colombo 29,117 29,089 19,362 19,646 66.5% 67.5%Bangladesh Biman Delhi Brussels 28,496 28,496 18,778 20,056 65.9% 70.4%Bangladesh Biman Mumbai Dhaka 28,399 28,673 10,143 18,331 35.7% 63.9%Indian Airlines Kolkata Kathmandu 28,314 28,066 18,901 14,850 66.8% 52.9%

Asiana Delhi Seoul 27,376 27,756 19,189 20,252 70.1% 73.0%Asiana Delhi Seoul / Jeju 260 167 Total 27,636 27,756 19,356 20,252 69.4% 73.0%Malaysian Airlines Delhi Kuala Lumpur 27,342 29,114 21,550 23,754 78.8% 81.6%Korean Air Mumbai Seoul 27,001 28,015 20,346 22,970 75.4% 82.0%Indian Airlines Ahmedabad Sharjah 26,040 25,792 22,493 21,978 86.4% 85.2%Air India Cochin Damman 24,221 23,989 17,835 16,677 73.6% 69.5%PIA Delhi Lahore 24,129 24,021 17,772 18,560 73.7% 77.3%Air India Trivandrum Abu Dhabi 23,942 12,002 20,681 7,495 86.4% 62.4%Air India Delhi Jeddah 22,620 22,570 11,909 17,095 52.6% 75.7%Silkair Trivandrum Singapore 22,150 22,150 14,793 15,156 66.8% 68.4%Srilankan Airlines Tiruchirapally Colombo 22,052 22,062 17,491 18,683 79.3% 84.7%Air India Riyadh Delhi 21,750 21,750 14,734 20,657 67.7% 95.0%Air India Delhi Damman 21,286 21,760 14,182 15,258 66.6% 70.1%Indian Airlines Varanasi Kathmandu 21,170 21,170 9,627 15,746 45.5% 74.4%Air India Hyderabad Singapore 21,105 21,105 18,235 18,405 86.4% 87.2%Indian Airlines Amritsar Sharjah 21,315 21,025 10,613 12,263 49.8% 58.3%Air India Ahmedabad Muscat 201 47 23.4%Indian Airlines Ahmedabad Muscat 20,880 20,880 13,182 14,838 63.1% 71.1%Total 20,880 21,081 13,182 14,885 63.1% 70.6%Air India Mumbai Nairobi 20,904 20,904 15,089 13,987 72.2% 66.9%Air France Mumbai Nairobi 200 159 79.5%Total 20,904 21,104 15,089 14,146 72.2% 67.0%Air India Calicut Abu Dhabi 19,871 20,675 17,783 17,670 89.5% 85.5%Air India Cochin Muscat 13,116 12,474 9,653 10,143 73.6% 81.3%Indian Airlines Cochin Muscat 14,935 15,080 8,151 8,139 54.6% 54.0%Total 28,051 27,554 17,804 18,282 63.5% 66.3%Indian Airlines Bangalore Sharjah 25,792 25,544 6,443 6,479 25.0% 25.4%Indian Airlines Chennai Bangkok 18,953 19,056 12,257 14,108 64.7% 74.0%Air India Mumbai Bahrain 16,698 34,102 6,110 16,336 36.6% 47.9%Indian Airlines Bangalore Muscat 16,675 16,675 14,647 13,625 87.8% 81.7%Air India Delhi Muscat 16,521 20,100 9,808 9,908 59.4% 49.3%Srilankan Airlines Mumbai Colombo 15,516 15,518 12,908 12,302 83.2% 79.3%Indian Airlines Kuwait Goa 15,225 15,080 9,237 9,122 60.7% 60.5%Indian Airlines Ahmedabad Kuwait 14,935 15,225 10,404 11,448 69.7% 75.2%Indian Airlines Kolkata Yangon 14,790 15,473 8,438 8,680 57.1% 56.1%Egypt Air Mumbai Sharjah 13,265 13,265 5,265 6,125 39.7% 46.2%



M&A




Air India Cochin Abu Dhabi 13,062 37,096 10,196 32,985 78.1% 88.9%Air India Cochin Bahrain 12,064 9,871 81.8%Indian Airlines Lucknow Sharjah 11,529 11,529 6,671 7,137 57.9% 61.9%Air India Bangalore Dubai 10,862 10,669 7,567 7,608 69.7% 71.3%Air India Calicut Dubai 10,625 207 8,941 199 84.2% 96.1%Indian Airlines Sharjah Tiruchirapally 10,584 10,584 7,382 7,998 69.7% 75.6%Air India Cochin Kuwait 10,452 10,452 7,249 8,926 69.4% 85.4%Air India Delhi Abu Dhabi 10,424 11,244 8,512 9,683 81.7% 86.1%Air India Cochin Doha 8,352 7,314 87.6%Indian Airlines Cochin Doha 2,320 2,175 1,048 361 45.2% 16.6%Total 2,320 10,527 1,048 7,675 45.2% 3.4%Air India Chennai Kuwait 10,050 5,182 51.6%Bangladesh Biman Chittagong Kolkata 8,075 8,075 5,647 5,613 69.9% 69.5%British Airways Kolkata London 7,531 6,868 5,883 5,159 78.1% 75.1%Indian Airlines Calicut Ras Al Khaima 7,385 7,685 3,383 4,224 45.8% 55.0%Indian Airlines Calicut Al-Fujairah 7,540 7,250 3,440 3,945 45.6% 54.4%Air India Delhi Moscow 3,960 3,960 2,536 2,441 64.0% 61.6%SAS Delhi Moscow 180 176 97.8%Total 3,960 4,140 2,536 2,617 64.0% 63.2%Egypt Air Sholapur Jeddah 1,511 781 51.7%Egypt Air Delhi Beirut 1,033 1,033 748 759 72.4% 73.5%Egypt Air Sholapur Beirut 506 759 438 589 86.6% 77.6%


Source: ICAO, CRISIL / M & A compilation Note: Revenue passengers are commercial passenger for whose transportation an air carrier receives commercial remuneration


M&A

APPENDIX III



KLM Delhi Amsterdam 82,140 82,921 65,482 68,244 79.7% 82.3%Northwest Delhi Amsterdam 69,043 68,758 45,776 57,731 66.3% 84.0%Total 151,183 151,679 111,258 125,975 73.6% 83.1%Bangladesh Biman Kolkata Dhaka 85,102 89,760 62,441 63,643 73.4% 70.9%British Airways Kolkata Dhaka 45,340 45,086 18,433 12,647 40.7% 28.1%Indian Airlines Kolkata Dhaka 20,104 28,394 13,657 15,753 67.9% 55.5%Total 150,546 163,240 94,531 92,043 62.8% 56.4%Northwest Mumbai Amsterdam 108,474 107,405 83,434 86,626 76.9% 80.7%KLM Mumbai Amsterdam 40,607 40,316 28,091 30,853 69.2% 76.5%Total 149,081 147,721 111,525 117,479 74.8% 79.5%Lufthansa Delhi Frankfurt 137,591 137,981 97,987 101,988 71.2% 73.9%Northwest Delhi Frankfurt 273 269 98.5%Total 137,864 137,981 98,256 101,988 71.3% 73.9%Air France Delhi Paris 85,517 85,003 64,497 68,611 75.4% 80.7%Air India Delhi Paris 51,872 53,278 35,972 35,230 69.3% 66.1%Total 137,389 138,281 100,469 103,841 73.1% 75.1%SIA Delhi Singapore 106,128 106,128 80,169 82,769 75.5% 78.0%Air India Delhi Singapore 19,796 20,729 15,010 11,935 75.8% 57.6%Total 125,924 126,857 95,179 94,704 75.6% 74.7%Air India Mumbai Riyadh 113,543 110,949 74,625 85,579 65.7% 77.1%

Thai Airways Bangkok Kolkata 49,809 49,809 37,389 37,242 75.1% 74.8%Indian Airlines Bangkok Kolkata 56,585 41,505 36,261 28,195 64.1% 67.9%Total 106,394 91,314 73,650 65,437 69.2% 71.7%Cathay Pacific Mumbai Bangkok 76,336 76,336 62,894 62,135 82.4% 81.4%Thai Airways Mumbai Bangkok 8,559 8,559 6,228 6,592 72.8% 77.0%Qantas Mumbai Bangkok 421 421 180 374 42.8% 88.8%Air India Mumbai Bangkok 293 120 41.0%Total 85,609 85,316 69,422 69,101 81.1% 81.0%Air India Mumbai Jeddah 82,218 79,997 49,643 52,280 60.4% 65.4%Air France Mumbai Paris 74,233 73,834 53,431 60,721 72.0% 82.2%Air India Mumbai Paris 1,699 293 1,459 88 85.9% 30.0%Total 75,932 74,127 54,890 60,809 72.3% 82.0%Indian Airlines Delhi Kathmandu 72,515 72,325 49,056 40,224 67.6% 55.6%Srilankan Airlines TrivandrumColombo 52,330 52,341 41,633 41,851 79.6% 80.0%Indian Airlines TrivandrumColombo 11,455 11,455 8,742 9,149 76.3% 79.9%Total 63,785 63,796 50,375 51,000 79.0% 79.9%Air India Delhi Dubai 63,309 40,619 44,341 36,050 70.0% 88.8%KLM Delhi Dubai 291 243 83.5%Total 63,309 40,910 44,341 36,293 70.0% 88.7%

Load FactorCity Pair Pax Seat Capacity Pax Revenue Traffic


M&A

APPENDIX III - (Contd.)



Indian Airlines Calicut Sharjah 62,840 62,176 40,283 40,379 64.1% 64.9%Indian Airlines Cochin Sharjah 62,256 62,008 45,858 44,880 73.7% 72.4%Lufthansa Chennai Frankfurt 59,966 59,966 48,359 50,973 80.6% 85.0%Air India Bangalore Singapore 30,922 20,714 21,103 14,044 68.2% 67.8%Indian Airlines Bangalore Singapore 27,260 27,115 17,963 19,469 65.9% 71.8%Total 58,182 47,829 39,066 33,513 67.1% 70.1%PIA Mumbai Karachi 57,798 57,907 36,139 44,776 62.5% 77.3%Air India Mumbai Damman 55,563 53,756 27,091 33,000 48.8% 61.4%Uzbekistan Airways Delhi Tashkent 55,228 55,228 19,682 22,627 35.6% 41.0%Malaysian Airlines Delhi Kuala Lumpur 54,684 54,096 30,929 33,427 56.6% 61.8%SIA Kolkata Singapore 29,614 29,614 21,505 22,474 72.6% 75.9%Royal Brunei Airline Kolkata Singapore 21,357 21,408 13,689 12,026 64.1% 56.2%Total 50,971 51,022 35,194 34,500 69.0% 67.6%Indian Airlines Calicut Doha 50,418 50,895 29,886 31,320 59.3% 61.5%SAS Delhi Copenhagen 49,534 49,704 37,192 35,086 75.1% 70.6%British Airways Kolkata London 49,197 49,927 33,001 39,397 67.1% 78.9%Air India Cochin Dubai 48,611 40,632 36,764 31,518 75.6% 77.6%Air India Mumbai Kuwait 47,337 57,114 30,660 42,359 64.8% 74.2%Air India Mumbai Muscat 43,168 40,619 17,151 24,173 39.7% 59.5%Bangladesh Biman Mumbai Muscat 221 195 88.2%Total 43,168 40,840 17,151 24,368 39.7% 59.7%Indian Airlines Trivandrum Male 42,251 42,147 35,018 34,365 82.9% 81.5%Air India Mumbai Abu Dhabi 40,784 49,703 28,365 28,962 69.5% 58.3%British Airways Chennai London 40,285 40,790 32,897 33,061 81.7% 81.1%SIA Mumbai Manchester 40,138 40,138 26,040 29,906 64.9% 74.5%Malaysian Airlines Mumbai Kuala Lumpur 40,048 38,642 17,602 18,183 44.0% 47.1%Indian Airlines Kolkata Kathmandu 39,089 39,047 21,038 17,161 53.8% 43.9%Indian Airlines Varanasi Kathmandu 36,685 36,975 13,182 24,230 35.9% 65.5%Srilankan Airlines Delhi Colombo 33,958 33,976 21,160 23,064 62.3% 67.9%Air India Trivandrum Dubai 32,407 33,753 23,278 30,948 71.8% 91.7%Korean Air Mumbai Seoul 31,603 31,069 23,155 22,998 73.3% 74.0%PIA Delhi Karachi 29,334 29,474 21,561 24,589 73.5% 83.4%Air India Cochin Muscat 28,833 28,988 14,523 16,625 50.4% 57.4%Bangladesh Biman Mumbai Dhaka 28,125 27,904 15,424 11,116 54.8% 39.8%Air India Mumbai Doha 28,009 18,366 17,699 9,512 63.2% 51.8%Bangladesh Biman Delhi Dhaka 27,948 27,126 20,751 18,973 74.2% 69.9%Bangladesh Biman Delhi Brussels 27,126 27,948 16,358 18,814 60.3% 67.3%Air India Cochin Abu Dhabi 27,041 41,471 18,497 33,992 68.4% 82.0%Air India Calicut Abu Dhabi 26,413 26,960 21,708 23,252 82.2% 86.2%Srilankan Airlines Tiruchirapally Colombo 25,304 25,300 21,571 19,262 85.2% 76.1%



M&A



Carrier

Inbound Outbound Inbound Outbound Inbound Outbound

Air India Delhi Tokyo 25,781 25,488 15,007 17,163 58.2% 67.3%Asiana Delhi Seoul 24,480 25,496 15,973 17,067 65.2% 66.9%Asiana Delhi Seoul / Jeju 520 411 79.0%Total 25,000 25,496 16,384 17,067 65.5% 66.9%Air India Cochin Doha 13,098 12,034 6,632 8,943 50.6% 74.3%Indian Airlines Cochin Doha 11,890 11,890 5,336 5,641 44.9% 47.4%Total 24,988 23,924 11,968 14,584 47.9% 61.0%Air India Chennai Dubai 24,353 41,807 12,055 26,258 49.5% 62.8%Indian Airlines Ahmedabad Sharjah 24,041 23,938 17,483 16,245 72.7% 67.9%Indian Airlines Bangalore Sharjah 23,648 24,144 16,304 17,066 68.9% 70.7%Air India Cochin Damman 23,648 23,416 17,851 16,694 75.5% 71.3%Indian Airlines Ahmedabad Muscat 23,055 22,910 14,224 14,600 61.7% 63.7%Air India Delhi Jeddah 22,821 23,490 10,574 15,351 46.3% 65.4%Indian Airlines Chennai Bangkok 22,765 22,765 14,525 16,388 63.8% 72.0%Indian Airlines Bangalore Muscat 22,475 22,475 13,116 14,744 58.4% 65.6%Air India Trivandrum Abu Dhabi 22,164 10,222 18,500 6,472 83.5% 63.3%Silkair Trivandrum Singapore 22,152 22,152 15,101 15,165 68.2% 68.5%Royal Brunei Airline Kolkata Dubai 21,408 21,357 12,164 16,071 56.8% 75.2%PIA Delhi Lahore 21,344 21,230 12,643 14,719 59.2% 69.3%Air India Hyderabad Singapore 21,145 21,132 16,166 15,808 76.5% 74.8%Air India Mumbai Nairobi 20,886 20,886 13,042 12,923 62.4% 61.9%Malaysian Airlines Bangalore Kuala Lumpur 19,992 19,992 12,451 11,237 62.3% 56.2%Indian Airlines Hyderabad Dubai 19,352 19,745 9,083 6,770 46.9% 34.3%Srilankan Airlines Mumbai Colombo 19,315 19,316 14,530 14,276 75.2% 73.9%Air India Delhi Damman 19,330 21,409 11,056 14,483 57.2% 67.6%Air India Delhi Riyadh 19,090 21,750 12,890 20,319 67.5% 93.4%Air India Cochin Kuwait 16,086 10,348 9,913 8,347 61.6% 80.7%Air India Delhi Abu Dhabi 15,432 12,822 12,511 10,369 81.1% 80.9%Indian Airlines Ahmedabad Kuwait 15,225 15,080 11,339 11,455 74.5% 76.0%Indian Airlines Amritsar Sharjah 15,225 15,080 8,531 8,742 56.0% 58.0%Indian Airlines Goa Kuwait 15,080 15,225 9,205 9,420 61.0% 61.9%Indian Airlines Lucknow Sharjah 15,080 15,080 11,749 10,268 77.9% 68.1%Indian Airlines Kolkata Yangon 15,080 11,594 76.9%Indian Airlines Cochin Muscat 14,935 14,645 8,286 7,334 55.5% 50.1%Air India Delhi Muscat 14,288 18,452 6,397 8,472 44.8% 45.9%Air India Dubai Calicut 13,837 2,811 10,118 1,933 73.1% 68.8%Lufthansa Bangalore Frankfurt 13,175 12,785 10,792 10,829 81.9% 84.7%Egypt Air Mumbai Sharjah 13,099 13,099 5,908 6,160 45.1% 47.0%



M&A




Indian Airlines Mumbai Karachi 12,208 12,208 6,579 6,823 53.9% 55.9%Malaysian Airlines Chennai Penang 11,852 278 8,933 138 75.4% 49.6%Air India Cochin Bahrain 11,802 13,285 7,060 8,684 59.8% 65.4%Air India Delhi Kuwait 10,892 10,361 5,168 7,609 47.4% 73.4%Air India Bangalore Dubai 10,350 9,978 7,354 7,643 71.1% 76.6%Air India Trivandrum Muscat 10,338 10,338 6,411 6,824 62.0% 66.0%Malaysian Airlines Hyderabad Kuala Lumpur 10,290 10,290 5,715 5,363 55.5% 52.1%Silkair Cochin Singapore 9,940 9,940 5,164 5,161 52.0% 51.9%Bangladesh Biman Kolkata Chittagong 8,925 8,925 6,467 6,916 72.5% 77.5%Air India Hyderabad Dubai 8,771 8,972 4,845 3,547 55.2% 39.5%Air India Mumbai Hong Kong 7,388 6,986 1,903 2,861 25.8% 41.0%Indian Airlines Calicut Al-Fujairah 7,250 7,540 5,243 5,923 72.3% 78.6%Indian Airlines Calicut Ras Al Khaimah 7,105 7,105 5,373 6,354 75.6% 89.4%Air India Chennai Hong Kong 6,758 7,160 1,488 2,480 22.0% 34.6%Air India Trivandrum Damman 6,356 6,504 4,735 4,085 74.5% 62.8%Air India Hyderabad Jeddah 6,027 6,588 4,221 4,928 70.0% 74.8%Air India Calicut Jeddah 5,426 5,827 4,928 5,522 90.8% 94.8%Kyrghyzstan Airlines Delhi Bishkek 4,639 4,617 2,629 2,702 56.7% 58.5%Air India Chennai Kuwait 4,623 2,561 55.4%Indian Airlines Hyderabad Sharjah 4,464 4,216 1,391 2,224 31.2% 52.8%Air India Mumbai Bahrain 4,285 27,313 1,824 16,947 42.6% 62.0%Air India Kuwait Calicut 2,985 189 1,069 143 35.8% 75.7%Indian Airlines Tiruchirapally Colombo 2,261 2,261 1,065 1,022 47.1% 45.2%




M&A

APPENDIX IV



Singapore Airlines Singapore Chennai 138,662 138,662 111,421 120,341 80.4% 86.8%

British Airways London Delhi 129,984 128,931 91,080 98,208 70.1% 76.2%Virgin Atlantic London Delhi 30,267 30,267 23,529 23,966 77.7% 79.2%Total 160,251 159,198 114,609 122,174 71.5% 76.7%

Singapore Airlines Bombay Singapore 122,918 122,897 106,946 113,527 87.0% 92.4%Qantas Bombay Singapore 26,519 26,519 10,957 13,696 41.3% 51.6%Total 149,437 142,497 117,903 127,223 78.9% 89.3%

Sri Lankan Airlines Trichy Colombo 42,173 42,173 28,543 27,010 67.7% 64.0%

Sri Lankan Airlines Delhi Colombo 42,069 51,715 27,442 28,059 65.2% 54.3%

Sri Lankan Airlines Chennai Colombo 175,578 175,578 114,131 116,124 65.0% 66.1%

Lufthansa Bombay Frankfurt 132,814 132,814 99,742 106,752 75.1% 80.4%

Lufthansa Delhi Frankfurt 142,047 141,410 115,103 107,746 76.2% 81.0%

Cathay Pacific Dubai Bombay 76,305 75,969 52,204 61,089 68.4% 80.4%

Thai Airways Delhi Bangkok 114,594 115,220 96,158 99,768 83.9% 86.6%

Malaysia Airlines Chennai Kuala Lumpur 113,154 112,566 80,306 89,415 71.0% 79.4%

Singapore Airlines Delhi Singapore 107,100 107,100 83,756 89,285 78.2% 83.4%

Thai Airways Bombay Bangkok 49,366 49,061 36,939 40,083 74.8% 81.7%Cathay Pacific Bangkok Bombay 75,969 76,305 62,163 62,587 81.8% 82.0%Total Bombay Bangkok 125,335 125,366 99,102 102,670 79.1% 81.9%

Cathay Pacific Delhi Hong Kong 65,210 65,210 44,610 49,398 68.4% 75.8%

Sri Lankan Airlines Trivandrum Colombo 72,624 118,416 45,830 47,819 63.1% 40.4%

Lufthansa Bangalore Frankfurt 38,167 38,167 33,802 34,814 88.6% 91.2%

British Airways Chennai London 37,157 36,798 29,076 29,711 78.3% 80.7%

Malaysia Airlines Bangalore Kuala Lumpur 30,870 30,576 25,169 24,112 81.5% 78.9%

Thai Airways Kolkata Bangkok 48,711 48,711 36,253 37,281 74.4% 76.5%

Lufthansa Chennai Frankfurt 60,598 60,598 51,373 54,132 84.8% 89.3%

British Airways London Kolkata 25,276 25,496 18,155 18,038 71.8% 70.7%

Singapore Airlines Bombay Manchester 40,105 40,082 28,493 31,278 71.0% 78.0%

Asiana Delhi Seoul 24,332 24,332 17,694 18,630 72.7% 76.6%

Malaysia Airlines Bombay Kuala Lumpur 91,820 91,820 40,741 40,493 44.4% 44.1%

Malaysia Airlines Delhi Kuala Lumpur 62,040 62,040 43,551 44,912 70.2% 72.4%

Malaysia Airlines Hyderabad Kuala Lumpur 15,288 15,582 10,682 12,571 69.9% 80.7%

Royal Brunei Kolkata Dubai 28,496 28,496 13,471 18,201 47.3% 63.9%

Oman Air Trivandrum Muscat 59,848 59,848 40,164 44,956 67.1% 75.1%

Oman Air Bombay Muscat 72,351 72,351 44,088 49,753 60.9% 68.8%



M&A

APPENDIX IV - (Contd.)



Singapore Airlines Kolkata Singapore 31,266 31,266 24,122 25,199 77.2% 80.6%Royal Brunei Kolkata Singapore 28,496 28,496 14,807 10,468 52.0% 36.7%Total Singapore Kolkata 59,762 59,762 38,929 35,667 65.1% 59.7%

Kyrghyzstan Airlines Delhi Bishkek 4,587 4,483 2,295 2,454 50.0% 54.7%

Eqypt Air Sharjah Bombay 14,102 5,858 41.5%Eqypt Air Bombay Sharjah 14,356 6,383 44.5%Eqypt Air Bombay Sharjah 14,102 14,356 5,858 6,383 41.5% 44.5%

Oman Air Kochi Muscat 41,699 41,699 26,161 28,500 62.7% 68.3%

Sri Lankan Airlines Bangalore Colombo 17,043 17,043 8,943 8,865 52.5% 52.0%

Oman Air Chennai Muscat 44,890 44,890 25,406 26,520 56.6% 59.1%British Airways Bombay London 116,215 116,475 83,928 93,127 72.2% 80.0%

Sri Lankan Airlines Bombay Colombo 31,155 31,155 20,638 20,627 66.2% 66.2%




M&A

APPENDIX V

PASSENGERS CARRIED BY CITY PAIR FY 2002 (AS REPORTED BY DGCA)

)

Sr. No Inbound Outbound Total

1 Mumbai Dubai 309,009 349,244 658,253 2 Chennai Singapore 213,941 222,262 436,203 3 Mumbai Riyadh 153,401 183,788 337,189 4 Mumbai London 151,239 157,000 308,239 5 Chennai Colombo 152,008 148,838 300,846 6 Delhi London 140,799 145,812 286,611 7 Mumbai Singapore 143,665 137,919 281,584 8 Mumbai Muscat 144,969 126,094 271,063 9 Mumbai Frankfurt 116,945 122,507 239,452

10 Delhi Bangkok 113,994 120,260 234,254 11 Chennai Kualalumpur 109,957 117,618 227,575 12 Mumbai Jeddah 108,692 109,553 218,245 13 Mumbai Amsterdam 103,998 110,953 214,951 14 Delhi Dubai 109,900 102,937 212,837 15 Delhi Frankfurt 96,883 100,148 197,031 16 Kathmandu Delhi 106,996 85,967 192,963 17 Delhi Singapore 94,296 98,341 192,637 18 Delhi Amsterdam 86,242 100,177 186,419 19 Mumbai Kuwait * 81,070 92,063 173,133 20 Delhi Paris 82,177 85,797 167,974 21 Calcutta Dhaka 75,587 75,755 151,342 22 Thiruvananthapuram Muscat 71,344 71,835 143,179 23 Mumbai New York 68,616 74,369 142,985 24 Mumbai Paris 68,762 73,344 142,106 25 Calcutta Bangkok 68,233 72,047 140,280 36 Mumbai Abu Dhabi 68,344 70,256 138,600 37 Chennai Muscat 62,642 62,684 125,326 38 Mumbai Bahrain 60,481 62,207 122,688 39 Mumbai Damam 52,840 68,445 121,285 40 Chennai Dubai 54,408 65,536 119,944 41 Hyderabad Dubai 59,692 57,349 117,041 42 Delhi Zurich 55,547 58,777 114,324 43 Delhi Moscow 52,710 61,229 113,939 44 Delhi Vienna 54,455 56,841 111,296 45 Chennai Frankfurt 53,243 57,364 110,607 46 Delhi Hong Kong 53,320 57,174 110,494 47 Mumbai Zurich 51,314 55,484 106,798 48 Mumbai Bangkok 50,188 50,837 101,025 49 Thiruvananthapuram Colombo 47,525 53,362 100,887 50 Mumbai Doha 48,533 49,145 97,678

City Pair


M&A

APPENDIX V - (Contd.)



51 Mumbai Milan 47,029 50,299 97,328 52 Delhi Kuwait 50,508 46,571 97,079 53 Mumbai Hong Kong 48,715 46,776 95,491 54 Mumbai Nairobi 44,506 47,267 91,773 55 Thiruvananthapuram Doha 41,902 45,789 87,691 56 Delhi Muscat 42,959 42,490 85,449 57 Calicut Sharjah 39,900 39,696 79,596 58 Delhi Riyadh 36,892 42,663 79,555 59 Cochin Muscat 37,803 39,117 76,920 60 Delhi Abu Dhabi 41,181 33,795 74,976 61 Cochin Dubai 33,624 40,411 74,035 62 Delhi Kualalumpur 34,365 37,013 71,378 63 Thiruvananthapuram Male 35,235 35,488 70,723 64 Chennai Riyadh 35,127 34,472 69,599 65 Bangalore Singapore 34,518 31,330 65,848 66 Amritsar Ashkhabad 32,008 32,315 64,323 67 Mumbai Kualalumpur 28,767 34,666 63,433 68 Chennai London-Heath 31,331 31,669 63,000 69 Thiruvananthapuram Kuwait 31,494 31,365 62,859 70 Chennai Kuwait 30,073 32,217 62,290 71 Thiruvananthapuram Abu Dhabi 32,071 29,600 61,671 72 Mumbai Karachi 29,471 31,270 60,741 73 Delhi Copenhagen 31,817 28,824 60,641 74 Calcutta Singapore 27,626 28,632 56,258 75 Delhi Tokyo 28,118 27,305 55,423 76 Thiruvananthapuram Dubai 25,524 29,136 54,660 77 Mumbai Johanneburg 26,919 27,623 54,542 78 Mumbai Chicagoil 22,469 28,108 50,577 79 Cochin Sharjah 26,148 22,198 48,346 80 Cochin Abu Dhabi 23,701 22,779 46,480 81 Mumbai Mauritius 22,280 23,459 45,739 82 Mumbai Seoul 22,636 22,023 44,659 83 Delhi Colombo 20,112 23,559 43,671 84 Thiruvananthapuram Bahrain 20,331 22,536 42,867 85 Bangalore Kualalumpur 22,607 19,118 41,725 86 Calicut Abu Dhabi 20,397 21,236 41,633 87 Calcutta London 20,449 20,619 41,068 88 Tiruchirapal Colombo 21,893 19,086 40,979 89 Delhi Jeddah 20,853 19,956 40,809 90 Bangalore Frankfurt 19,328 20,005 39,333 91 Delhi Amman 19,505 19,155 38,660 92 Cochin Damam 18,272 17,364 35,636 93 Mumbai Addis Ababa 16,192 18,939 35,131 94 Amritsar Tashkent 18,309 16,611 34,920 95 Delhi Seoul 17,647 16,886 34,533

City Pair


M&A




96 Calcutta Kathmandu 18,576 15,454 34,030 97 Hyderabad Sharjah 17,673 16,349 34,022 98 Calicut Bahrain 16,057 17,039 33,096 99 Delhi Tashkent 15,036 17,361 32,397 100 Delhi Sharjah 16,349 15,591 31,940 101 Chennai Brussells 15,293 16,624 31,917 102 Delhi Karachi 14,599 16,842 31,441 103 Delhi New York 13,824 17,257 31,081 104 Calicut Doha 14,871 15,684 30,555 105 Thiruvananthapuram Singapore 15,137 15,274 30,411 106 Varanasi Kathmandu 11,312 18,737 30,049 107 Mumbai Tel Aviv 14,282 14,437 28,719 108 Mumbai Colombo 13,889 14,021 27,910 109 Calicut Dubai 15,433 11,343 26,776 110 Mumbai Sanna 13,760 12,916 26,676 111 Hyderabad Singapore 12,075 12,897 24,972 112 Mumbai Moscow 10,726 12,603 23,329 113 Chennai Bangkok 11,080 11,422 22,502 114 Delhi Damam 10,195 11,582 21,777 115 Mumbai Manchester 10,132 11,536 21,668 116 Cochin Doha 10,056 11,265 21,321 117 Chennai Jeddah 13,157 8,023 21,180 118 Delhi Ashkhabad 10,302 10,853 21,155 119 Mumbai Tokyo 9,926 11,079 21,005 120 Calcutta Dubai 10,805 9,934 20,739 121 Chennai Damam 9,956 10,568 20,524 122 Delhi Bahrain 9,425 10,976 20,401 123 Mumbai Sydney 13,445 6,642 20,087 124 Lucknow Sharjah 10,624 9,388 20,012 125 Mumbai Teheran 10,404 9,495 19,899 126 Cochin Kuwait 10,318 9,468 19,786 127 Mumbai Amman 9,491 9,859 19,350 128 Mumbai Kathmandu 9,623 9,602 19,225 129 Delhi Mauritius 9,319 9,269 18,588 130 Delhi Lahore 8,786 8,650 17,436 131 Hyderabad Kualalumpur 8,360 8,995 17,355 132 Calcutta Amsterdam 8,554 8,447 17,001 133 Calicut Kuwait 7,757 9,100 16,857 134 Mumbai Dailastx 6,130 10,341 16,471 135 Tiruchirapal Sharjah 7,671 8,189 15,860 136 Hyderabad Muscat 7,441 8,035 15,476 137 Ahmedabad Sharjah 7,476 7,700 15,176 138 Calicut Jeddah 7,075 7,981 15,056 139 Cochin Bahrain 6,682 8,348 15,030 140 Ahmedabad Kuwait 7,159 7,690 14,849

City Pair


M&A




141 Bangalore Sharjah 7,534 7,298 14,832 142 Delhi Dhaka 7,284 6,232 13,516 143 Ahmedabad Muscat 5,167 8,081 13,248 144 Amritsar Sharjah 6,472 6,553 13,025 145 Bangalore Dubai 6,284 6,657 12,941 146 Bangalore Muscat 6,163 6,773 12,936 147 Calcutta Chittagong 6,056 6,714 12,770 148 Goa Sharjah 6,262 5,908 12,170 149 Bangalore Kathmandu 6,062 5,442 11,504 150 Hyderabad Jeddah 5,739 5,732 11,471 151 Thiruvananthapuram Damam 5,916 5,460 11,376 152 Goa Kuwait 5,689 5,466 11,155 153 Chennai Dhahran 6,508 4,405 10,913 154 Chennai Mauritius 5,434 5,147 10,581 155 Cochin Singapore 5,182 5,161 10,343 156 Mumbai Cairo 4,845 4,986 9,831 157 Delhi Addis Ababa 4,807 4,851 9,658 158 Mumbai Jakarta 6,451 3,196 9,647 159 Mumbai Dhaka 4,671 4,431 9,102 160 Coimbatore Sharjah 4,006 4,950 8,956 161 Cochin Jeddah 4,770 3,947 8,717 162 Delhi Osaka 4,141 3,919 8,060 163 Bangalore Bangkok 3,666 3,995 7,661 164 Delhi Damascus 3,646 3,981 7,627 165 Calcutta Rangoon 3,405 4,181 7,586 166 Hyderabad Kuwait 3,877 3,551 7,428 167 Mumbai Damascus 4,331 2,930 7,261 168 Mumbai Medina 4,567 2,584 7,151 169 Delhi Almata 2,987 4,092 7,079 170 Delhi Paro 3,359 3,568 6,927 171 Calcutta Amman 3,604 3,319 6,923 172 Chennai Bahrain 4,519 2,372 6,891 173 Mumbai Dar-es-salaa 3,182 3,255 6,437 174 Mumbai Sharjah 3,863 2,228 6,091 175 Calcutta Sharjah 2,977 3,010 5,987 176 Delhi Chicago 3,951 1,745 5,696

Total 5,818,195 6,013,740 11,831,935

Others 75,449

Grand Total 11,907,384

City Pair

Source: DGCA Note: * Outbound traffic figures for Kuwait have been assumed at 2002 /03 levels as 2002/01 figures were unavailable


M&A

APPENDIX VI

FLIGHTS ADDED / DISCONTINUED BY KEY MARKETS

POST 9 /11 TO DATE

ApproxAdded Withdrawn Added Withdrawn Date

CHINA / S. EAST ASIA ChinaBeijing - Delhi 1 10,400 Aug-03 China Eastern Beijing - Delhi 1 10,400 Apr-02 China Eastern Beijing - Mumbai 1 12,700 Apr-03 Ethiopian AirlinesSubTotal 3 33,500

Korea (South)Seoul - Delhi 1 14,000 Apr-03 Asiana AirlinesSeoul - Mumbai 1 15,300 Apr-03 Korean Air

SubTotal 2 29,300 SingaporeSingapore - Bangalore 3 44,900 Sep-03 Singapore AirlinesSingapore - Hyderabad 4 24,500 Nov-02 Silk AirSydney (via Singapore) - Mumbai 5 59,200 Apr-02 Qantas Airways

SubTotal 7 5 69,400 59,200 TaiwanTaipei - Delhi 3 41,300 Apr-02 China Air

SubTotal 3 41,300 ThailandBangkok - Mumbai 2 21,200 All NipponBangkok - Bangalore 1 15,236 Nov-04 Thai AirwaysBangkok - Bangalore 4 60,944 Apr-04 Thai AirwaysBangkok - Chennai 1 15,236 Nov-04 Thai AirwaysBangkok - Chennai 4 60,944 Oct-03 Thai AirwaysBangkok - Gaya n.a 30,700 Nov-04 Thai AirwaysBangkok - Guwahati n.a 30,700 Nov-04 Thai AirwaysBangkok - Varanasi n.a 30,700 Nov-04 Thai AirwaysSubTotal 10 2 244,460 21,200 MalaysiaKuala Lumpur - Mumbai 2 28,900 2003 / 04 Malaysia AirlinesKuala Lumpur - Bangalore 1 15,300 2003 / 04 Malaysia AirlinesKuala Lumpur - Hyderabad 2 30,600 2003 / 04 Malaysia AirlinesKuala Lumpur - Chennai 100 seats 36,400 2003 / 04 Malaysia AirlinesKuala lumpur - Kolkata* 3 45,864 2003 / 04 Malaysia Airlines

SubTotal 8 157,064

CHINA / S.EAST ASIA TOTAL 33 7 575,024 80,400 -

Sector AirlineApprox Seats (Year)Flights (per week)


M&A

APPENDIX VI - (Contd.)

FLIGHTS ADDED / DISCONTINUED BY KEY MARKETS

POST 9 /11 TO DATE….. (contd)


EUROPEAustriaVienna - Delhi 1 5,100 Nov-02 Austrian AirlinesVienna - Delhi 1 5,100 Jun-02 Austrian AirlinesVienna - Delhi 3 15,300 Nov-01 Austrian AirlinesSubTotal 2 3 10,200 15,300 BelgiumBrussels - Chennai 3 37,600 Nov-01 Sabena

SubTotal 3 37,600 DenmarkCopenhagen - Delhi 5 67,900 Feb-02 SASSubTotal 5 67,900 EnglandManchester - Mumbai 2 39,000 Apr-03 Singapore AirlinesSubTotal 2 39,000 FranceParis - Mumbai 3 39,300 Apr-02 Air FranceParis - Delhi 138 seats 50,232 Nov-03 Air FranceSubTotal 3 50,232 39,300 GermanyFrankfurt - Mumbai 2 40,500 May-02 LufthansaFrankfurt - Bangalore 3 38,500 Sep-01 LufthansaFrankfurt - Chennai 3 60,800 Apr-03 LufthansaSubTotal 8 139,800 HollandAmsterdam - Delhi 7 102,300 Oct-01 NorthwestSubTotal 7 102,300 ItalyMilan - Mumbai 1 13,000 Apr-03 AlitaliaRome - Delhi 7 72,800 2003 / 04 AlitaliaSubTotal 7 1 72,800 13,000 SwitzerlandZurich - Delhi / Zurich - Mumbai 2 20,800 Winter 02 Swiss International Zurich - Delhi 6 77,000 Nov-03 Swiss International SubTotal 8 97,800

EUROPE TOTAL 17 32 273,032 412,200

NORTH AMERICA (U.S.A. & CANADA)USAChicago - Delhi 7 126,300 Oct-01 United AirlinesSubTotal 7 126,300 CanadaToronto - Delhi 7 102,700 Nov-03 Air CanadaToronto - Delhi 2 30,300 Nov-01 Canada 3000Vancouver - Delhi 1 15,100 Nov-01 Canada 3000Toronto - Mumbai 2 34,000 Nov-01 Canada 3000SubTotal 7 5 79,400

NORTH AMERICA 7 19 102,700 332,000



M&A

APPENDIX VI - (Contd.)

FLIGHTS ADDED / DISCONTINUED BY KEY MARKETS POST 9 /11 TO DATE….. (contd)


INDIAN SUBCONTINENTAfghanistanKabul - Delhi 4 41,700 Feb-02 Ariana AfghanKabul - Amristar 1 10,400 After April 02 Ariana AfghanSubTotal 5 52,100 SeychellesSeychelles - Mumbai 1 5,800 Nov-01 Air SeychellesSubTotal 1 5,800 Sri LankaColombo - Bangalore 1 7,300 May-03 Sri Lankan AirlinesColombo - Bangalore 3 21,800 Jul-02 Sri Lankan AirlinesColombo - Hyderabad n.a n.a 2003 / 04 Sri Lankan AirlinesColombo - Kochi 3 21,800 May-03 Sri Lankan AirlinesColombo - Thiruvanthampurum 2 15,000 Apr-02 Sri Lankan AirlinesColombo - Trichy 1 7,800 Jun-02 Sri Lankan AirlinesColombo - Delhi ( via Bodhgaya) 1 7,300 Nov-02 Sri Lankan AirlinesSubTotal 11 81,000

INDIAN SUBCONTINENT 17 138,900

MIDDLE EASTIran 2 20,800 Sep-02 Mahan AirSubTotal 2 20,800 JordanAmman - Kolkata 1 10,700 After June 02 Royal JordanianSubTotal 1 10,700 Qatar Doha - Mumbai 2 15,000 Nov-02 Qatar Airways Doha - Kochi 3 22,500 Mar-03 Qatar Airways Doha - Hyderabad 3 26,000 Dec-02 Qatar Airways

SubTotal 8 63,500 UAEBahrain - Kochi (via Abu Dhabi) 5 157,500 Jul-03 Gulf AirDubai - Kochi 3 37,900 Dec-02 EmiratesDubai - Kochi 2 25,300 Apr-03 EmiratesSubTotal 10 220,700 Saudi ArabiaRiyadh - Kochi 2 31,200 Apr-03 Saudi Arabian Riyadh - Kochi 1 15,600 Nov-03 Saudi Arabian SubTotal 3 46,800

MIDDLE EAST TOTAL 24 362,500

CIS COUNTRIESBishkek - Delhi 2 20,800 Jul-03 Kyrgyzstan Airlines

CIS COUNTRIES 2 20,800

GRAND TOTAL 100 58 1,472,956 824,600



M&A

APPENDIX VII

FLIGHTS ADDED / DISCONTINUED BY INDIAN AIRPORT

POST 9 /11 TO DATE Approx

Added Discontinued Added Discontinued Date

AmristarKabul 1 10,400 After April 02 Ariana AfghanTotal 1 10,400 BangaloreBangkok 1 15,236 Nov-04 Thai AirwaysBangkok 4 60,944 Apr-04 Thai AirwaysSingapore 3 44,900 Sep-03 Singapore AirlinesColombo 1 7,300 May-03 Sri Lankan AirlinesColombo 3 21,800 Jul-02 Sri Lankan AirlinesFrankfurt 3 38,500 Sep-01 LufthansaKuala Lumpur 1 15,300 2003 / 04 Malaysia Airlines

Total 16 - 203,980 ChennaiBangkok 1 15,236 Nov-04 Thai AirwaysBangkok 4 60,944 Oct-03 Thai AirwaysFrankfurt 3 60,800 Apr-03 LufthansaBrussels 3 37,600 Nov-01 SabenaKuala Lumpur 100 seats 36,400 2003 / 04 Malaysia AirlinesTotal 8 3 173,380 37,600 DelhiRome 7 72,800 2003 / 04 AlitaliaToronto 7 102,700 Nov-03 Air CanadaZurich 6 77,000 Nov-03 Swiss InternationalParis 138 seats 50,232 Nov-03 Air FranceBeijing 1 10,400 Aug-03 China Eastern Bishkek 2 20,800 Jul-03 Kyrgyzstan AirlinesSeoul 1 14,000 Apr-03 Asiana AirlinesVienna 1 5,100 Nov-02 Austrian AirlinesColombo (via Bodhgaya) 1 7,300 Nov-02 Sri Lankan AirlinesZurich 1 10,400 Winter 02 Swiss InternationalTehran 2 20,800 Sep-02 Mahan AirVienna 1 5,100 Jun-02 Austrian AirlinesBeijing 1 10,400 Apr-02 China Eastern Taipei 3 41,300 Apr-02 China AirCopenhagen 5 67,900 Feb-02 SASToronto 2 30,300 Nov-01 Canada 3000Vancouver 1 15,100 Nov-01 Canada 3000Vienna 3 15,300 Nov-01 Austrian AirlinesAmsterdam 7 102,300 Oct-01 NorthwestChicago 7 126,300 Oct-01 United AirlinesKabul 4 41,700 Feb-02 Ariana AfghanTotal 31 32 402,632 444,600 GayaBangkok n.a 30,700 Nov-04 Thai AirwaysTotal - 30,700 GuwahatiBangkok n.a 30,700 Nov-04 Thai AirwaysTotal - 30,700



M&A

FLIGHTS ADDED / DISCONTINUED BY INDIAN AIRPORT POST 9 /11 TO DATE….. (contd)

ApproxAdded Discontinued Added Discontinued Date

HyderabadColombo n.a n.a 2003 / 04 Sri Lankan AirlinesSingapore 4 24,500 Nov-02 Silk Air Doha 3 26,000 Dec-02 Qatar AirwaysKuala Lumpur 2 30,600 2003 / 04 Malaysia AirlinesTotal 9 81,100 KochiBahrain (via Abu Dhabi) 5 157,500 Jul-03 Gulf AirDoha 3 22,500 Mar-03 Qatar AirwaysRiyadh 2 31,200 Apr-03 Saudi ArabianRiyadh 1 15,600 Nov-03 Saudi ArabianColombo 3 21,800 May-03 Sri Lankan AirlinesDubai 3 37,900 Dec-02 EmiratesDubai 2 25,300 Apr-03 EmiratesTotal 19 311,800 KolkataAmman 1 10,700 After June 200 Royal JordanianKuala Lumpur 3 45,864 2003 / 04 Malaysia AirlinesTotal 4 56,564 Mumbai Sydney (via Singapore) 5 59,200 Apr-02 Qantas Airways Bangkok 2 21,200 All Nippon Beijing 1 12,700 Apr-03 Ethiopian Airlines Manchester 2 39,000 Apr-03 Singapore Airlines Milan 1 13,000 Apr-03 Alitalia Seoul 1 15,300 Apr-03 Korean Air Zurich 1 10,400 Winter 02 Swiss International Seychelles 1 5,800 Nov-01 Air Seychelles Frankfurt 2 40,500 May-02 Lufthansa Paris 3 39,300 Apr-02 Air France Toronto 2 34,000 Nov-01 Canada 3000 Doha 2 15,000 Nov-02 Qatar Airways Kuala Lumpur 2 28,900 Oct-03 Malaysia AirlinesTotal 9 16 118,200 216,100 ThiruvanthampurumColombo 2 15,000 Apr-02 Sri Lankan AirlinesTotal 2 15,000 TrichyColombo 1 7,800 Jun-02 Sri Lankan AirlinesTotal 1 7,800 VaranasiBangkok n.a 30,700 Nov-04 Thai AirwaysTotal 30,700

Grand Total 100 51 1,472,956 698,300



M&A

APPENDIX VIII TOURIST ARRIVALS TO INDIA FROM TOP 15 SOURCE MARKETS BY QUARTER

FY 2001

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

USA UK Sri Lanka Canada France

Tour

ist A

rriv

als

Jan-Mar Apr-Jun Jul-Sep Oct-Dec

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Australia Germany Japan Malaysia Nepal

Tour

ist A

rriv

als


-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Singapore Netherlands Italy Korea (S) U.A.E

Tour

ist A

rriv

als



M&A

APPENDIX IX

DETAILS ON INDIA’S AIR SERVICE AGREEMENTS (2001)

S. No. Country Utilization Air India/ Foreignof ASA Indian Airlines Carriers

1 Afghanistan Y Y2 Algeria N3 Armenia N4 Australia N5 Austria Y Y6 Azerbaijan N7 Bangladesh Y Y8 Belarus N9 Belgium N

10 Bhutan Y Y11 Brunei Y12 Bulgaria N13 Canada N14 China Y Y15 Croatia N16 Cyprus N17 Czech Republic N18 Denmark N19 Egypt Y Y20 Ethiopia Y Y21 Fiji N22 Finland N23 France Y Y Y24 Georgia N25 Germany Y Y Y26 Ghana N27 Greece N28 Gulf (Oman) Y Y Y29 Gulf (Qatar) Y Y Y30 Gulf (Bahrain) Y Y Y31 Gulf (UAE) Y Y Y32 Hong Kong Y Y Y33 Hungary N34 Indonesia N Y35 Iran Y Y36 Iraq N37 Ireland N38 Israel Y Y39 Italy Y Y40 Japan Y Y Y41 Jordan Y Y42 Kazakhstan Y Y43 Kenya Y Y Y44 Republic of Korea Y Y45 Kuwait Y Y Y46 Kyrghystan Y Y47 Latvia N48 Lebanon N49 Lesotho N50 Lithuania N51 Luxembourg N52 Macau N53 Madagascar N54 Malaysia Y Y Y55 Maldives Y Y


M&A

S. No. Country Utilization Air India/ Foreignof ASA Indian Airlines Carriers

56 Malta N57 Mauritius Y Y58 Mongolia N59 Morocco N60 Myanmar Y61 Nepal Y Y Y62 Netherlands Y Y63 New Zealand N64 Nigeria N65 Norway N66 Pakistan N N67 Philippines N68 Poland N69 Portugal N70 Russian Federation Y N Y71 Romania N72 Saudi Arabia Y Y Y73 Seychelles Y Y74 Singapore Y Y Y75 Slovakia N76 Slovenia N77 South Africa Y N Y78 Spain N79 Sri Lanka Y Y80 Sweden N81 Switzerland Y Y82 Syria Y Y83 Taiwan Y Y84 Tajikstan N85 Tanzania N Y86 Thailand Y Y Y87 Turkey N88 Turkmenistan Y Y89 United Kingdom Y Y Y90 U.S.A. Y Y Y91 Uganda N92 Ukraine Y Y93 Uzbekistan Y Y94 Vietnam N95 Yemen Arab Republic N Y96 Yugoslavia N97 Zambia N

Total 46 20 44

Source : Lok Sabha, Unstarred Question No. 4976, dated on 27.08.2001.


M&A

APPENDIX X

AIR INDIA’S BLOCK SPACE ARRANGEMENTS

Airline Flights Aircraft Sector/Week

Crossair 10 A332L3 Mumbai-Zurich / Delhi ZurichAustrian Airlines 3 A340 Delhi-Vienna-DelhiAsiana Airlines 3 767 Delhi-Seoul / Seoul - San FransiscoSingapore Airlines 7 747 Singapore-Los Angeles-SingaporeAir France 2 B744 Mumbai-Paris-MumbaiAir France 3 343 Delhi-Paris-DelhiAir France 3 A320 Paris-Amsterdam-ParisAir France 3 A320/319 Paris-Berlin-ParisAir France 3 A320/B737/A319 Paris-Frankfurt-ParisAir France 3 A320/A319 Paris-Geneva-ParisVirgin Atlantic 2 747 Delhi - London -DelhiAeroflot 3 B-777 Delhi - Moscow - DelhiEmirates 7 A330 Dubai - Chennai / Dubai - KochiKuwait Airways 4 A310-300 Trivandrum-Kuwait-TrivandrumKuwait Airways 4 A310-300 Chennai-Kuwait-ChennaiKuwait Airways 3 A300/605R Kochi-Kuwait-KochiAir Mauritius 3 B767/A340 Mumbai-Mauritius-MumbaiAir Mauritius 2 B767/A340 Delhi-Mauritius-DelhiAir Mauritius 1 B767 Chennai-Mauritius-ChennaiMalaysia Airlines 4 B777 Mumbai-Kuala Lumpur-MumbaiMalaysia Airlines 2 A330 Bangalore-Kuala Lumpur-BangaloreMalaysia Airlines 1 A330 Hyderabad-Kuala Lumpur-HyderabadMalaysia Airlines 7 A744 Kuala Lumpur-Los Angeles-Kuala LumpurLufthansa 3 B747 Mumbai-Frankfurt-MumbaiLufthansa 4 747 Delhi-Frankfurt-DelhiThai Airways 3 A330 Mumbai-Bangkok-MumbaiSilk Air 4 A320 Kochi-Singapore-KochiSilk Air 3 A319/A320 Hyderabad-Singapore-Hyderabad

100

Source: Air India websiteNote: In all the above arrangements, the foreign carrier is the Operating Carrier and Air-India is

the Participating Carrier


M&A

APPENDIX XI

RECENT MAJOR AIRPORT PRIVATISATIONS

Date Airport / Airport

Operator Location Acquirer

Jul 00 Hamburg Germany Ochtief, Aer Rianta Jul 00 Aeroporto di Firenze Italy IPO Sep 00 ASUR Mexico IPO Nov 00 Unique Zurich Kloten Switzerland Secondary Placement Nov 00 Copenhagen Airports Peru Flughafen Frankfurt, Bechtel Enterprises, Cosapi Dec 00 Bristol Airport UK Macquarie Bank & Cintra Concesiones de Infrastructure

de Transporte Jan 01 Prestwick Airport UK Infratil NZ, The Special Utilities Investment Trust &

Omniport Feb 01 East Midlands Airport UK Manchester Airport Mar 01 London Luton UK TBI, Bechtel May 01 Newcastle Airport UK Copenhagen Airports June 01 Bangalore Airport UK Unique Zurich Airport Sep 01 Oman Oman BAA, Suhail Bahwan Group, ABB Equity Venture Dec 01 Birmingham UK Macquarie Airports Group

POTENTIAL MAJOR PRIVATISATIONS IN 2002 / 03

Airport / Airport Operator Location Method of Sale Status

Berlin Brandenburg Flughafen Germany Majority Trade Sale Current Aeroporto di Firenze Italy Minority Trade Sale Current Sydney Airports Corporation Australia Majority Trade Sale Current Malta Malta BOT Current Schiphol Group Netherlands IPO Expected Auckland International Airport New Zealand Secondary Placement Expected Malaysia Airports Malaysia Minority Trade Sale Possible Cyprus Cyprus BOT Current Czech Airports Authority Czech Minority Trade Sale Current Societa Esercizi Aeroportuali Italy IPO Current Mexico Pacific Group Mexico IPO Current Thailand Thailand IPO Expected Turin Airport Italy Minority Trade Sale Possible Munich Airport Germany Minority Trade Sale Possible


M&A

APPENDIX XII

DISPARITY IN ATF PRICING FOR AIR INDIA / IAC ON INTERNATIONAL ROUTES

Station Supplier Rs / GallonPrice APT Fee Total

(Sales Tax)

Ahmedabad IOC / BP 116.1 41.8 157.9 75.8 Mumbai IOC / HP / BP 115.6 23.1 138.7 66.6 Bangalore IOC / BP 115.6 32.4 147.9 71.0 Kolkata IOC / HP / BP 125.7 31.4 157.1 75.4 Delhi IOC / HP / BP 118.7 23.7 142.4 68.4 Goa IOC / BP 119.7 23.9 143.7 69.0 Guwahati IOC 109.2 24.0 133.2 63.9 Hyderabad IOC / BP 121.9 4.9 126.8 60.9 Chennai IOC / HP / BP 112.0 28.2 140.3 67.3 Trivandrum IOC / BP 118.9 46.5 165.4 79.4 Cochin IOC / HP / BP 119.0 46.5 165.6 79.5 Calicut IOC / HP 114.0 44.6 158.6 76.1

Sub Total 116.8 26.0 142.8 68.5

Abu Dhabi ADNOCFOD 96.00 - 96.00 46.21 Al Ain ADNOCFOD 94.00 - 94.00 45.25 Bahrain AIR - BP 102.75 - 102.75 49.46 Bahrain BANACO 104.00 - 104.00 50.06 Bangkok Exxon - Mobil 88.78 2.75 91.53 44.06 Bangkok Air Total 89.40 2.75 92.15 44.36 Chicago Texaco 94.39 4.70 99.09 47.70 Damman Saudi Aramco 99.43 1.06 100.49 48.37 Dar-E-Salaam AIR - BP 111.80 - 111.80 53.82 Doha Qatar Jet 104.00 - 104.00 50.06 Dubai ENOC 106.44 - 106.44 51.24 Frankfurt AIR - BP 91.71 3.30 95.01 45.73 Hongkong Shell 86.02 4.70 90.72 43.67 Jakarta Perta Mina 98.04 - 98.04 47.19 Jeddah Shell 110.04 0.61 110.65 53.26 Jeddah AGIP 107.93 0.61 108.54 52.25 Kuala Lumpur Shell 87.32 2.00 89.32 43.00 Kuwait KAFCO 96.94 - 96.94 46.66 London Shell 90.95 2.00 92.95 44.74 Muscat AIR - BP 90.55 1.25 91.80 44.19 Nairobi Chevron 95.01 9.72 104.73 50.41 New York Texaco 96.28 5.28 101.56 48.89 New Ark Texaco 97.13 11.65 108.78 52.36 Osaka Exxon - Mobil 88.53 15.60 104.13 50.12 Paris Exxon - Mobil 95.90 3.50 99.40 47.85 Riyadh Saudi Aramco 99.43 1.06 100.49 48.37 Singapore Exxon - Mobil 89.78 0.70 90.48 43.55 Tokyo Exxon - Mobil 87.63 10.50 98.13 47.24

Sub Total 97.60 46.98

Grand Total 116.97 56.22

U.S. Cents / Gallon (USC / USG)

Source: Air India


M&A

APPENDIX XII (contd.)

DISPARITY IN ATF PRICING FOR AIR INDIA / IAC

ON INTERNATIONAL ROUTES

(Rs. / KL)

DomesticParticulars Other Air India / Flights

Carriers Indian Airlines

Basic Price 15,240 15,240 15,435 Excise Duty nil nil 2,470 Sales Tax* nil 3,810 4,475

Total 15,240 19,050 22,380

Source: Indian AirlinesNote:* Sales Tax on ATF is applicable for international flights operated by Air India andIndian Airlines only as International carriers are exempt from payment of sales tax on ATF asper the ICAO convention 1944

International Flights

Impact of Civil Aviation Policies on Tourism In India ( 117 ) Bibliography

M&A

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M&A

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05 dot civilaviation final report

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